INFORMATIONAL CONFERENCE HANDBOOK

Presented by the Office of the Labor Member US Railroad Retirement Board

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US Railroad Retirement Board

Mission Statement

The Railroad Retirement Boardrsquos mission is to administer retirement survivor and unemploymentsickness insurance benefit programs for railroad workers and their families under the Railroad Retirement Act and the Railroad Unemployment Insurance Act These programs provide income protection during old age and in the event of disability death or temporary unemployment and sickness The Railroad Retirement Board also administers aspects of the Medicare program and has administrative responsibilities under the Social Security Act and the Internal Revenue Code

In carrying out its mission the Railroad Retirement Board will pay ben-efits to the right people in the right amounts in a timely manner and will take appropriate action to safeguard our customersrsquo trust funds The Railroad Retirement Board will treat every person who comes into contact with the agency with courtesy and concern and respond to all inquiries promptly ac-curately and clearly

Cover photos from left - Federal Railroad Administration social media USDOTFRA - Metropolitan Transportation Authority of the State of New York social media MTANewYorkCityTransit

RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE SYSTEMS

HANDBOOK

US RAILROAD RETIREMENT BOARD Office of the Labor Member

844 North Rush Street Chicago Illinois 60611-1275

RRBgov

Introduction Welcome to our 2018 Informational Conference Program

You are an essential part of our efforts to help railroad workers and their families under-stand the many important benefits available to them under the Railroad Retirement and Rail-road Unemployment Insurance Acts and we greatly appreciate you being here today

The RRBrsquos Informational Conference Pro-gram was started by the Office of the Labor Member back in 1957 Since then it has pro-vided a valuable platform for keeping union officers up-to-date on the benefits available under the railroad retirement system Thou-sands of railroad labor representatives have attended these conferences over the years and have achieved a much better understanding of the provisions and financing of the railroad retirement and unemployment insurance systems and of the administrative organization of the RRB In turn they have helped make our administration of these programs more effective by passing on to their fellow railroad employees the information they acquire at these confer-ences

During this conference some of our field managers will describe and discuss the benefits available under the agencyrsquos retirement-survivor unemployment-sickness and Medicare programs I encourage you to meet and get to know our representatives here today and those in the RRB offices in your local areas They are experts on these programs and will be happy to help you with any railroad retirement questions or problems you may have

Walter A Barrows

Today you will also receive various informational materials that describe the RRBrsquos programs in detail Please take the time to read this material so that you will be knowledgeable about the benefits available to railroad workers and their families The RRB counts on you to help keep your fellow union members informed of these benefit provisions so keep your Informational Kit handy as a source of reference when questions arise Please know that you have an important role in ensuring that each and every railroad employee retiree and dependent receives the benefits to which he or she is entitled and we are grateful for your invaluable assistance

Again thank you very much for your interest in the Informational Conference Program and for taking the time to meet with us here today

Walter A Barrows Labor Member

Contents

1 Development of the Railroad Retirement System 1

The Railroad Retirement Acts of 1934 and 1935 2 The Railroad Retirement Act of 1937

and Later Amendments 3 The Railroad Retirement Act of 1974 8 1981 Amendments 10 The 1983 Railroad Retirement Solvency Act 13 Legislation Enacted 1985-2000 15 The Railroad Retirement and Survivorsrsquo

Improvement Act of 2001 18 Court Decisions Legislation Enacted 2006-2015 21 Employment Payrolls and Tax Collections 22

2 Provisions of the Railroad Retirement Act 23 Creditable Service and Earnings 26 Employee and Spouse Annuities 27 Survivor Benefits 43 Retirement and Survivor Information 54 Employee and Spouse Annuity Formula Components 68 Survivor Annuity Formula Components 78

3 Financing of the Railroad Retirement System 83 Payroll Taxes 84 Financial Interchange 86 Investments 87 Borrowing from General Revenues Related to the Financial Interchange 88 Appropriations from General Revenues 88 Taxation of Railroad Retirement Benefits 91 Financial Position of the Railroad Retirement System 91 Financial Report 93 Tax Tables 96

Contents

4 Health Insurance for the Aged and Disabled 101 Legislative Background 101 Eligibility 103 Part A and Part B Enrollment 103 Explanation of Hospital Insurance Benefits (Part A) 105 Explanation of Medical Insurance Benefits (Part B) 107 Medicare Advantage Plans (Part C) 110 Medicare Prescription Drug Coverage (Part D) 111

5 Development of the RailroadUnemployment Insurance System 113

The Railroad Unemployment Insurance Act of 1938 and Later Amendments 114

The Technical and Miscellaneous Revenue Act of 1988 118 The Railroad Unemployment Insurance

Amendments Act of 1996 121 Employment and Benefits 122

6 Provisions of the Railroad UnemploymentInsurance Act 123 Benefit Provisions 123 Disqualifications 130 Free Placement Service 131 Payments 131 Getting Unemployment Benefits 132 Getting Sickness Benefits 133

7 Financing Unemployment and Sickness Insurance 141 Contributions 141 Railroad Unemployment Insurance Account 143 Financial Report 145

8 Administration of the Railroad Retirement System 147 Administration 147 Keeping Beneficiaries Informed 151 Program Integrity 152

I n d e x 155

1Development of the Railroad Retirement System

Private pension plans originated in the railroad industry in 1874 when the first for-mal industrial pension plan in North America was established By 1927 over 80 per-cent of all railroad employees in the United States worked for employers who had for-mal plans in operation but only a small proportion of employees ever received benefits under these plans The pension plans had a number of serious defects They generally paid inadequate benefits and had limited provisions for disability retirement Credits could not be transferred freely from employer to employer and the employers could terminate the plans at will With few exceptions the plans were inadequately financed and could not withstand even temporary difficulties

The Great Depression of the early 1930s led to movements for retirement plans on a national basis because few of the nationrsquos elderly were covered under any type of retirement plan Railroad employees were particularly concerned because the private

Why a separate railroad retirement system Private pension plans originated in the railroad industry

By the 1930s employment conditions had deteriorated

Many older workers in railroad industry

Railroad retirement system broadened existing programs under uniform national plan

1

2 2018 INFORMATIONAL CONFERENCE HANDBOOK

railroad pension plans could not keep up with the demands made upon them by the general deterioration of employment conditions and by the great accumulation of older workers in the industry While the social security system was in the planning stage railroad workers sought a separate railroad retirement system which would continue and broaden the existing railroad programs under a uniform national plan The proposed social security system was not scheduled to begin monthly benefit payments for several years and would not give credit for service performed prior to 1937 while conditions in the railroad industry called for immediate benefit pay-ments based on prior service

Legislation was enacted in 1934 1935 and 1937 to establish a railroad retire-ment system separate from the social security program legislated in 1935 Such legislation taking into account the particular circumstances of the rail industry was not without precedent Many laws pertaining to rail operations and safety had already been enacted since the Interstate Commerce Act of 1887 Since passage of the Railroad Retirement Acts of the 1930s numerous other railroad laws have sub-sequently been enacted

THE RAILROAD RETIREMENT ACTS OF 1934 AND 1935

The Railroad Retirement Act of 1934 set up the first retirement system for non-governmental workers in this country to be administered by the Federal Govern-ment However the Act was declared unconstitutional by a Federal district court and this decision was sustained by the Supreme Court The Railroad Retirement and Carriersrsquo Taxing Acts of 1935 were enacted to avoid the constitutional difficul-ties encountered by the 1934 Act However these Acts were also challenged in the courts and a Federal district court held that neither the employees nor their employ-ers could be compelled to pay railroad retirement taxes The court however did not prohibit the payment of benefits and the Railroad Retirement Board (RRB) began awarding annuities in July 1936 under the provisions of the 1935 Act

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 3

While an appeal was pending railroad management and labor at the request of President Roosevelt formed a joint committee to negotiate their differences The result was a memorandum of agreement which led to the Railroad Retire-ment and Carriersrsquo Taxing Acts of 1937 establishing the railroad retirement sys-tem The pensions of retired employees on the railroadsrsquo private pension rolls were transferred to the RRBrsquos rolls with pension reductions restored The benefit payments of almost 50000 pensioners were taken over by the RRB in July 1937 There followed an immediate reduction in both the number of employed and un-employed older railroad workers By the end of 1938 the number of workers age 65 and over in active railroad service was less than one-half of the number two years earlier Almost 100000 employees had retired under the system by that date 80 percent of them under the nondisability provisions

THE RAILROAD RETIREMENT ACT OF 1937 AND LATER AMENDMENTS

The 1937 Act set up a staff retirement plan which provided annuities to aged retired employees based on their creditable railroad earnings and service The amounts of retirement annuities awarded were directly related to the employeersquos earnings and length of service with a maximum of $120 a month Creditable earn-ings were limited to a maximum of $300 a month while no more than 30 years of service could be credited when service before 1937 was counted Annuities could be paid at age 65 or later regardless of length of service or at ages 60-64 (on a re-duced basis) after 30 years of service

The conditions for paying annuities based on disability were severely restricted The disability had to be total and permanent and 30 years of service were required for full annuities Employees could receive disability annuities at ages 60-64 after less than 30 years of service but on a reduced basis

The Act made little provision for dependents of deceased employees and no provision for spouse annuities A survivor could receive a lump sum equal to 4 percent of the employeersquos creditable earnings after 1936 less any annuity payments

4 2018 INFORMATIONAL CONFERENCE HANDBOOK

already made In addition a retiring employee could elect to receive a reduced an-nuity in order to provide an annuity to his surviving spouse

The system was financed by a schedule of taxes beginning with 275 percent each on employers and employees applicable to the first $300 of monthly compen-sation

Amendments to the 1937 Act Numerous amendments after 1937 increased benefits and added to what began

as a staff retirement system social insurance features similar to those provided by the social security system

The first significant sets of amendments were enacted in 1946 and 1951 By initiating coordination in certain areas with the social security system they laid the foundation for the evolution of the systemrsquos present structure Amendments enacted in 1946 added survivor benefits to the railroad retirement system which were simi-lar to those provided under social security coverage but approximately 25 percent higher

These amendments also introduced the first step of coordination with the social security system by dividing jurisdiction over individual survivor benefits between the RRB and the Social Security Administration Benefits to survivors were there-after based on combined railroad retirement and social security earnings credits

Provisions for annuities based on occupational disabilitymdasha staff retirement featuremdashwere also established by the 1946 amendments The provision for occupa-tional disability annuities recognized that employees who were not totally disabled could be prevented from earning a living because they could not perform their reg-ular railroad jobs The 1946 amendments also reduced the service requirements for total disability annuities making it possible for comparatively young disabled employees to receive benefits

In addition the amounts of disability retirement annuities were increased through the elimination of the reduction for employees with less than 30 years of service and the extension of new minimum provisions of the law to annuities based

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 5

on disability In 1954 annuities were provided for disabled children of deceased employees And in 1968 disabled widows ages 50-59 were added to those who could receive benefits

In 1951 amendments added annuities for the spouses of retired railroad em-ployees This legislation completed the addition of social insurance features to the railroad retirement system and expanded the coordination of the railroad retirement and social security systems

Provision was made for social security to assume jurisdiction of benefits for employees not having at least 10 years of railroad service and a minimum guaranty was provided to ensure that railroad retirement benefits would be no less than the benefit or additional benefit the social security system would have paid on the basis of the railroad service involved In addition a financial interchange was estab-lished between the two systems to apportion the costs of benefits and taxes related to railroad service on an equitable basis

In 1965 provision was made to coordinate the railroad retirement tax base and tax rate with those of the social security system This provision and the existing pro-visions for the financial interchange served as an operating vehicle through which the Medicare program was easily extended in 1965 to railroad employees and mem-bers of their families on the same basis as it was provided for social security bene-ficiaries The addition of a strictly staff benefit for career employees was provided in 1966 in the form of supplemental railroad retirement annuities

By 1970 amendments to the Act provided for regular annuities of more than double the amount provided under the original formula The amounts of earnings creditable and taxable were $650 a month in 1970 compared with $300 originally Tax rates had substantially increased in order to finance the new types of benefits the increases in benefit amounts and other liberalizations in the program The rate of regular railroad retirement taxes still divided equally between employees and employers in 1971 was 995 percent on each as compared with 35 percent in 1946

The annuities being paid in 1970 included a general benefit increase of 15 per-cent provided in that year following a social security benefit increase of 15 percent

6 2018 INFORMATIONAL CONFERENCE HANDBOOK

In the following two years of an inflationary spiral in the national economy social security and railroad retirement benefits were again substantially increased by 10 percent in 1971 and 20 percent in 1972 However these three increases were pro-vided for railroad retirement annuities on a temporary basis only The costs of mak-ing these three increases aggregating 518 percent permanent without adequate fi-nancing would have jeopardized the solvency of the system Congress directed that a Commission on Railroad Retirement be formed to study the railroad retirement system and its financing for the purpose of recommending to Congress changes in the system that would ensure adequate benefit levels on an actuarially sound basis

The preliminary recommendations of management and labor for revision of the railroad retirement system recorded in a Memorandum of Understanding were en-acted by the Congress in 1973 The major provisions which reflected components of an industry-wide wage settlement effected a redistribution of railroad retirement taxes and earlier retirement as follows Generally effective October 1 1973 em-ployee and employer tax rates under the Railroad Retirement Tax Act were revised so as to reduce the employee rate to the percentage rate paid by employees in social security-covered employment with the employer absorbing the difference so that total tax income to the program was maintained at the level in effect before the change Employee rates consequently were lowered from 1060 percent of credit-able earnings to 585 percent employer rates correspondingly increased from 1060 percent to 1535 percent Effective July 1 1974 all employees at least 60 years of age and having 30 years or more of creditable railroad service could retire without their annuities being subject to reduction for retirement before age 65 Under previ-ous law only female employees were granted this advantage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 7

Commission on Railroad Retirement REPORT

Major changes in the law were recommended in the Commissionrsquos 1972 report as its basic solution to the serious problems of the system Essentially these in-volved a proposed restructuring of the railroad retirement system with two separate tiers of benefits tier I being a social security-type benefit and tier II a supplemental staff benefit In addition the Commission recommended a phase-out of dual railroad retirement-social security benefits with some protection for the vested rights to such benefits already acquired by employees

Under the 1937 Act an individual engaging in covered employment under both the Railroad Retirement Act and the Social Security Act was entitled to benefits under both Acts assuming he or she met at least the minimum requirements for benefit eligibility By the early 1970s approximately 40 percent of all beneficiaries on the RRBrsquos rolls were also receiving social security benefits Because of certain duplications in their dual benefits considered a windfall element the total of their benefits from both systems averaged more than the annuities of railroad employees who worked in the rail industry exclusively and who had paid proportionally higher retirement taxes for the purpose of receiving higher benefits At the same time dual benefits were a cost to the railroad retirement system because they reduced the systemrsquos income from its financial interchange with the social security system (By the mid-1970s the costs to the railroad retirement system of dual benefits exceeded $450 million per year and would have been a major factor in bankrupting the railroad retirement system if allowed to continue The cumulative total loss to the system by 1974 had been about $4 billion)

Upon the release of the Commissionrsquos report Congress ordered that represen-tatives of employees and representatives of carriers negotiate mutual recommen-dations for a restructuring of the railroad retirement system which would put it on a sound financial basis taking into account the report and recommendations of the Commission on Railroad Retirement

8 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT ACT OF 1974

The Railroad Retirement Act of 1974 reflecting the basic principles of the Commission Report and incorporating the subsequent management-labor agree-ment was enacted on October 16 1974

Two-Tier Formulas The 1974 Act provided a first tier formula yielding amounts equivalent to social

security benefits taking into account both railroad retirement and nonrailroad so-cial security credits A second tier formu-la based on railroad service exclusively provides benefits comparable to those paid over and above social security ben-efits by other industrial pension systems The total annuity yielded by the tier for-mulas continued traditional levels of rail-road retirement benefits and reflected the three cost-of-living increases aggregating 518 percent which had been provided between 1970 and 1972 on a temporary basis

Dual Benefit Phase-Out

1974 Act Features

two-tier benefit formula

phase-out of vested dual benefits

cost-of-living increases

benefit improvements

The 1974 Act eliminated duplications in dual railroad retirement-social security benefits for new hires and individuals not vested as of December 31 1974 under both programs Dual benefits for vested employees were protected through provi-sion for payment of an amount in their annuities referred to as a vested dual benefit However such vested dual benefit amounts were not allowed to increase because of any social security or railroad credits earned after December 31 1974

For career employees vesting was defined as having 10 years of railroad ser-vice on December 31 1974 and in addition having enough quarters of coverage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 9

under the social security program to be entitled to a benefit at age 62 if no further social security credits were acquired after December 31 1974

Vesting for employees who had fully qualified for benefits under both systems but had left the industry prior to 1974 presented a difficult problem The 1974 Act favored employees who had remained in the railroad industry more than those who left railroad employment Accordingly active or long-term employees in the rail-road industry in a sense were placed in the same situation as employees who had already retired while former employees were made subject to more stringent re-quirements The resulting vesting provisions were subsequently tested in the courts and upheld by the US Supreme Court in 1980

Cost-of-Living Increases The 1972 amendments to the Social Security Act introduced provisions for cost-

of-living adjustments in social security benefits on the basis of changes in the Con-sumer Price Index Under the two-tier plan the first tier railroad retirement benefit increases automatically the same way social security benefits increase Four sepa-rate tier II cost-of-living adjustments were provided during the six-year period com-mencing January 1 1975 (A fifth increase was provided in subsequent legislation)

Benefit Improvements The 1974 Act also provided improvements in existing benefits The initial agree-

ment of labor and management had enabled employees to retire on or after July 1 1974 on unreduced annuities if they met the eligibility requirements of attaining age 60 and completing 30 years of service But an employee could not receive a supplemental annuity until age 65 nor could a spouse receive a spouse annuity until the employee reached age 65 The Act revised the eligibility requirements for these benefits so that they were coordinated directly with the employee annuity requirements Under the 1937 Act the vast majority of widows and other survivors received benefits based upon 110 percent of the comparable social security benefit and the resulting amount was generally felt to be inadequate in relation to the level of other railroad benefits The 1974 Act survivor formula increased the calculation basis to 130 percent from the former 110 percent

10 2018 INFORMATIONAL CONFERENCE HANDBOOK

Financing It was anticipated that the changes in the benefit formulas the reduction in dual

benefits higher investment earnings plus provisions for additional funds from the Federal Government to pay the phase-out costs of dual benefits together would place the railroad retirement system on a reasonably sound basis However the cost estimates made at that time did not anticipate the resurgence of substantial inflation in the latter part of the decade which led to a recurrence of financial difficulties for the railroad retirement system

With regard to financing the phase-out costs of dual benefits the joint manage-ment-labor committee initially proposed that the cost of vested dual benefit pay-ments be paid out of the social security trust funds as this element was basically a social security benefit However Congress concluded that the cost should be borne by the General Treasury It was thought that it would be unfair to impose this cost upon current and future employees who would not (except where vested rights are involved) be permitted to receive dual benefits upon retirement or upon the rail-roads since the excess benefit arose out of nonrailroad employment performed by these individuals Payment out of the General Treasury was supported by a prec-edent regarding military service and by the fact that the dual benefit problem had been brought about by prior congressional action repealing past dual benefit restric-tions over the objections of the railroads

1981 AMENDMENTS

By 1980 recurring inflation and recession combined with other factors placed financial stresses on the railroad retirement system which made it clear that further financial action was needed to maintain the system Railroad retirement amend-ments were subsequently enacted on August 13 1981 as part of an Omnibus Bud-get Reconciliation Act The amendments were generally effective October 1 1981

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 11

Taxes These amendments increased railroad retirement taxes on both rail employers

and employees While tier I taxes on employers and employees remained at the same rate as social security taxes 665 percent in 1981 the 95 percent tier II tax paid by employers was increased to 1175 percent and employees assumed a tier II tax of 2 percent The amendments also gave the RRB the authority to borrow from US Treasury general funds on the basis of forthcoming financial interchange in-come if Railroad Retirement Account funds were insufficient to pay benefits during a month

Benefit Provisions Although the two-tier benefit structure provided by the 1974 Act was left intact

changes were made in the tier II formula and there were other changes in benefit provisions The amendments revised the employee spouse and survivor formulas for annuity portions paid over and above social security levels Generally for career retirees whose annuities are awarded on or after October 1 1981 the simplified formula yields awards that automatically keep pace with average wage increas-es in the last 60 months of service The 1981 law continued tier II employee and spouse cost-of-living increases while revising survivor cost-of-living increases to correspond with those provided employees and spouses It also broadened the cur-rent connection requirement applicable to certain career employee benefits While the amended law eliminated future supplemental annuity closing dates it restricted future supplemental annuity eligibility to employees with some service prior to Oc-tober 1981 (Under prior law an employee who worked in railroad service after a specified closing date based on his or her 65th birthday would permanently forfeit entitlement to a supplemental annuity) In addition the amendments provided ben-efits for divorced spouses surviving divorced spouses and remarried widow(er)s which are like those provided under the Social Security Act

12 2018 INFORMATIONAL CONFERENCE HANDBOOK

This legislation also required prorated adjustments in individual vested dual benefit payments depending upon the amounts appropriated to the fund created for these payments and the level of vested dual benefit payments was made contingent on the annual Federal budget and appropriations process The amendments restrict-ed the further award of vested dual benefit payments to vested employees with dual coverage on their own earnings and precluded further awards of vested dual benefit payments to spouses or widow(er)s Furthermore after 1981 no further cost-of-liv-ing adjustments are made to vested dual benefit payments

Other Financing Provisions The 1981 amendments mandated in the event of certain adverse financial in-

dicators that railway management and labor and the White House make further financing recommendations to Congress And the new law required the RRB to reduce annuity levels during any fiscal year in which it appears there would be insufficient funds with which to make full benefit payments on a timely basis for every month of the year

In the first half of 1981 when the amendments were developed it was antici-pated that the financing arrangements would provide the railroad retirement system with adequate funding throughout the 1980s However the continuing recession in the national economy depressed rail traffic levels to the extent that large-scale lay-offs were underway by the first quarter of 1982 Average monthly employment in fiscal year 1982 dropped to 457000 from the 512000 average of the previous year and it subsequently declined to 388000 in the first quarter of 1983 The decline in employment limited payroll tax income accordingly In addition increased unem-ployment benefit payments resulting from the layoffs made such unprecedented de-mands on the Railroad Unemployment Insurance Account that it owed $500 million to the Railroad Retirement Account by the end of March 1983

The condition of the Railroad Retirement Account consequently deteriorated to the point that the RRB was required to prepare to reduce annuity levels on October 1 1983 by an estimated 40 percent of tier II portions in the absence of remedial financial legislation

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 13

THE 1983 RAILROAD RETIREMENT SOLVENCY ACT

The scheduled annuity reductions were averted by enactment of the Railroad Retirement Solvency Act on August 12 1983 The 1983 Act was based on nego-tiated recommendations of management and labor and also incorporated recom-mendations of Congress and the Administration The amendments were in part patterned after major social security amendments enacted earlier in the year which had already effected changes in railroad retirement taxes and benefits through coor-dinating provisions in the Railroad Retirement Act

Taxes Under the Railroad Retirement Solvency Act tier II taxes on employers in-

creased from 1175 percent to 1275 percent in January 1984 to 1375 percent in January 1985 and to 1475 percent in January 1986 Tier II taxes on employees increased from 2 percent to 275 percent in 1984 to 350 percent in 1985 and to 425 percent in 1986 And since 1985 railroad retirement taxes are applied to earnings on an annual rather than a monthly basis As a result of the 1983 so-cial security amendments tier I taxes on employers and employees increased from 670 percent to 7 percent in January 1984 to 705 percent in 1985 to 715 per-cent in 1986 to 751 percent in 1988 and to 765 percent in 1990 (The tier I tax rate has remained unchanged since 1990 however it was temporarily reduced to 565 percent on employees in 2011 and 2012)

The 1983 social security amendments subjected railroad retirement tier I annui-ty portions to Federal income taxes on the same basis as social security benefits and the Solvency Act made tier II benefits and vested dual benefit payments subject to Federal income tax on the same basis as private pensions beginning with tax year 1984 The revenues raised from income taxes on tier I and vested dual benefits are used for benefit payments Revenues raised by the tax on tier II benefits were to be used for benefit payments through fiscal year 1988 after which the revenues would remain in general US Treasury funds Subsequent legislation extended these trans-fers permanently

14 2018 INFORMATIONAL CONFERENCE HANDBOOK

Other Financing Provisions The Railroad Retirement Account was reimbursed in three installments from the

general fund of the US Treasury for shortfalls in vested dual benefit appropriations between 1975 and 1981 The railroad retirement systemrsquos authority to borrow gen-eral US Treasury funds until the RRB receives financial interchange funds from the social security system was broadened to place financial interchange monies in the Railroad Retirement Account on a current basis

Benefit Provisions The 1983 social security amendments deferred July 1983 cost-of-living increas-

es to January 1984 and required that future increases be made in January of subse-quent years

This deferral applied to railroad retirement tier I annuity amounts as well as social security benefits The Railroad Retirement Solvency Act correspondingly changed the future payment dates of tier II cost-of-living increases from July 1 to January 1 with the first increase payable on January 1 1985 It also required an offset of the dollar amount of the next five percent of tier I cost-of-living increases from tier II benefits

The Act modified early retirement provisions for 30-year employees attaining age 60 after June 1984 by applying certain reductions to the tier I portions of their annuities if they retired before age 62 The reductions did not affect tier II benefits and employees who acquired 30 years of service and attained age 60 before July 1 1984 could still retire at any time with full benefits as under prior law (The Rail-road Retirement and Survivorsrsquo Improvement Act of 2001 as described on pages 18-21 eliminated these reductions for 6030 employees retiring after 2001) The 1983 law established a five-month waiting period for railroad retirement disability annuities just as for social security disability benefits and altered the tier I compu-tation of annuities subject to reduction for certain non-covered service pensions It required the RRB to honor court orders that treat non-tier I railroad retirement ben-efits as property subject to division in proceedings related to divorce annulment or legal separation And the Act limited the retroactivity of applications for benefits to a maximum of six months to conform to the Social Security Act except for disabil-

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 15

ity benefit applications which can retroact 12 months

The Solvency Act eliminated annuity reductions made under prior law when military service was counted as railroad service and was also the basis for benefits under another Federal law It conformed railroad retirement student benefit provi-sions to social security student benefit provisions and eliminated age reductions applied to disabled widow(er)srsquo annuities for months they were under age 60 when their annuities began

LEGISLATION ENACTED 1985-2000

The Balanced Budget and Emergency Deficit Control Act of 1985 known as the GrammRudmanHollings Act enacted in December 1985 required decreas-es in vested dual benefit payments during the 1986 fiscal year and suspension of the January 1986 cost-of-living increase in the tier II portions of railroad retirement annuities GrammRudman andor related budget legislation reduced vested dual benefits and supplemental annuities periodically in subsequent years

Budget reconciliation legislation enacted in April 1986 included changes in Internal Revenue Code provisions increasing income taxes on some railroad re-tirement annuities Effective with tax year 1986 the tier I portion of a railroad retirement annuity which is treated as a social security benefit for Federal income tax purposes was limited for tax purposes to amounts actually equivalent to social security benefits This primarily affected tier I early retirement benefits payable be-tween ages 60 and 62 and some occupational disability benefits that are now treated like private pensions

The Tax Reform Act of October 1986 eliminated for annuities beginning af-ter July 1 1986 the three-year recovery rule for contributory pensions which had been applicable to railroad retirement benefits exceeding social security equivalent levels Under the tax reform law railroad retirement benefits exceeding social se-curity equivalent levels are taxable immediately upon retirement For tax reporting purposes benefit payments are prorated on the basis of estimated life expectancies to exempt an employeersquos previously-taxed pension contributions

16 2018 INFORMATIONAL CONFERENCE HANDBOOK

While the railroad retirement trust funds held a reserve of $69 billion at the end of fiscal year 1987 the continuing decline in railroad employment had caused concern over the systemrsquos financing in the next century

A Federal budget deficit reduction bill enacted in December 1987 increased tier II tax rates in January 1988 to 1610 percent on employers and 490 percent on employees and extended for one year until October 1 1989 the time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits

1988 Amendments The Railroad Unemployment Insurance and Retirement Improvement Act

was included in the Technical and Miscellaneous Revenue Act of 1988 enacted November 10 1988 The railroad retirement amendments in the Act eliminated the provision suspending annuities of retired employees and spouses who work for their last pre-retirement nonrailroad employers but provided for tier II earnings deduc-tions in such cases The Act also increased the amount disabled railroad retirement annuitants could earn without reducing their benefits from $200 per month to $400 per month exclusive of work-related expenses

In addition it provided railroad retirement military service credits under cer-tain conditions for railroad workers who served in the Armed Forces between June 15 1948 and December 15 1950 but had not been allowed service credit be-cause there was not a national state of emergency in force during this period before the Korean War

The Act also provided a lump sum equal to railroad retirement tier II payroll taxes deducted from separation or severance payments made after 1984 to be paid upon retirement to employees meeting minimum service requirements if the sepa-ration or severance payments did not yield additional railroad retirement service or earnings credits

Social security amendments included in this legislation modified the non-cov-ered service pension reductions applied to the social security and tier I railroad re-tirement benefits of employees awarded certain Federal State or local government pensions in recent years

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 17

Omnibus budget reconciliation legislation enacted in 1989 included a num-ber of railroad retirement and social security provisions affecting payroll taxes and benefits in 1990 and subsequent years The budget law increased the amount of earnings subject to social security and railroad retirement payroll taxes and spec-ified that 401(k) contributions and some employer-paid life insurance premiums are subject to railroad retirement payroll taxes conforming railroad retirement with social security

The 1989 budget law also revised sequestration of railroad retirement supple-mental annuities under the GrammRudman Act in fiscal year 1990 Subsequent 1990 omnibus budget legislation permanently exempted supplemental annuities from reductions under the GrammRudman Act The 1990 budget law also increased the maximum compensation subject to Medicare hospital insurance payroll tax and mandated an expedited payroll tax deposit schedule for large employers covered by social security or railroad retirement Budget legislation enacted in 1993 made all earnings subject to the Medicare payroll tax and for those in high tax brackets made a larger amount of social security and railroad retirement tier I benefits sub-ject to Federal income tax

The time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits was extended one year in 1989 and 1990 budget legislation further extended the date until October 1 1992 In 1994 legislation extended the transfers retroactive to October 1992 on a permanent basis which improved the financing of the railroad retirement system

Legislation enacted in April 2000 eased the earnings restrictions affecting so-cial security beneficiaries working after full retirement age The legislation also applied to railroad retirement annuitants but it did not change the railroad retire-ment work restrictions applying to last pre-retirement employment which are not included in the Social Security Act

18 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT AND SURVIVORSrsquo IMPROVEMENT ACT OF 2001

The Railroad Retirement and Survivorsrsquo Improvement Act of 2001 signed into law December 21 2001 liberalized early retirement benefits for 30-year employees and their spouses eliminated a cap on monthly retirement and disability benefits lowered the minimum service require-ment from 10 years (120 months) to 5 2001 Act years (60 months) of service if performed Benefit Changesafter 1995 and provided increased bene-

6030 retirementfits for some widow(er)s Financing sec- maximum provision eliminated tions in the law provided for the invest-

ment of railroad retirement funds in non- basic service requirement lowered

governmental assets adjustments in the widow(er)srsquo benefits

payroll tax rates paid by employers and employees and the repeal of a supplemental annuity work-hour tax The law was based on joint recommendations to Congress negotiated by a coalition of rail labor organizations and rail freight carriers

6030 Retirement The law amended the Railroad Retirement Act by eliminating the early retire-

ment reduction applied to the annuities of 30-year employees retiring between the ages of 60 and 62 if their annuities begin January 1 2002 or later The spouses of such employees are also eligible for full annuities at age 60 Full 6030 benefits had not been payable since 1983 legislation reduced such early retirement benefits

Maximum Provision The law eliminated effective January 1 2002 a maximum on the amount of

combined monthly employee and spouse benefit payments which had been intend-ed to prevent benefits from exceeding an amount based on an employeersquos earnings immediately prior to retirement This maximum provision had the unintended ef-fect of reducing benefits for former employees with no earnings or low earnings in the 10-year period prior to retirement and for long-service employees with mod-erate earnings

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 19

Basic Service Requirement The legislation lowered the minimum eligibility requirement for regular rail-

road retirement annuities from 10 years (120 months) of creditable railroad service to 5 years (60 months) of creditable railroad service for those with 5 years of ser-vice rendered after 1995 This provision was effective January 1 2002 and was not retroactive

Widow(er)srsquo Benefits The legislation established an initial minimum amount based on the two-tier

annuity amount that would have been payable to the railroad employee at the time the widow(er)rsquos annuity is awarded minus any applicable reductions Widow(er)rsquos annuities computed on the basis of the initial minimum amount will not increase until the amount payable under previous law plus cost-of-living increases is higher than the initial minimum amount

This provision was effective February 1 2002 and was not retroactive It ap-plied to widow(er)s on the rolls before the effective date only if the annuity the wid-ow(er) was receiving on the effective date was less than she or he would have re-ceived had the legislation been in effect on the date the widow(er)rsquos annuity began

Investment Changes The legislation provided for the transfer of railroad retirement funds from the

Railroad Retirement Accounts to the National Railroad Retirement Investment Trust whose Board of seven trustees is empowered to invest Trust assets in nongovern-mental assets such as equities and debt as well as in governmental securities The sole purpose of the Trust is to manage and invest railroad retirement assets

The Trust is a tax-exempt entity inde-pendent from the Federal Government Its Board of Trustees is comprised of the fol-

2001 Act Financing Changes

investments

payroll tax rates

supplemental annuity funding

20 2018 INFORMATIONAL CONFERENCE HANDBOOK

lowing three members selected by rail labor to represent the interests of labor three members selected by rail management to represent management interests and one independent member selected by a majority of the other six members The Trustees are subject to fiduciary standards similar to those required by the Employee Retire-ment Income Security Act The Trust must submit an annual report to Congress on its operations

Effect on Payroll Tax Rates The legislation reduced tier II tax rates on rail employers including rail labor

unions in calendar years 2002 and 2003 and beginning with 2004 provides auto-matic adjustments in the tier II tax rates for both employers and employees It also repealed the supplemental annuity work-hour tax rate paid by employers beginning with calendar year 2002

The tier II tax rate on rail employers and rail labor organizations was reduced from 1610 percent to 1560 percent in 2002 and to 1420 percent in 2003 The tier II tax rate for rail employee representatives was 1475 percent in calendar year 2002 and 1420 percent in 2003

While there was no change in the tier II tax rate of 490 percent on employees in the years 2002 and 2003 starting with calendar year 2004 tier II taxes on both employers and employees have been based on the ratio of certain asset balances to the sum of benefits and administrative expenses (the average account benefits ratio) Depending on the average account benefits ratio tier II taxes for employers range between 820 percent and 2210 percent while the tier II tax rate for employ-ees ranges between 0 percent and 490 percent In 2005 as a result of this provision the tier II tax rate on employees decreased to 440 percent from 490 percent The rate on employers and rail employee representatives decreased to 1260 percent from 1310 percent The 2006 rates were the same as in 2005 In 2007 the tier II tax rate on employees decreased from 440 percent to 390 percent and on employers it decreased from 1260 percent to 1210 percent Those rates remained the same through 2012 In 2013 the tier II tax rate on employees increased from 390 percent to 440 percent The rate on employers increased from 1210 percent to 1260 per-cent Those rates did not change in 2014 In 2015 the tier II tax rate on employees increased from 440 percent to 490 percent The rate on employers increased from

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 21

1260 percent to 1310 percent Those rates remain unchanged through 2018

Supplemental Annuity Funding In addition to repealing the supplemental annuity work-hour tax the legislation

eliminated the separate Supplemental Annuity Account Supplemental annuities are funded through the National Railroad Retirement Investment Trust

COURT DECISIONS LEGISLATION ENACTED 2006-2015

The Pension Protection Act of 2006 was signed into law August 17 2006 The Act effective August 17 2007 provided divorced spouses a railroad retirement an-nuity independent of the employeersquos actual entitlement and extended court-ordered partition payments to surviving former spouses Legislation enacted January 12 2007 increased the amount employees receiving railroad retirement disability an-nuities can earn without losing any benefits Legislation modifying partition pay-ments was signed into law on December 23 2008

The Tax Relief Unemployment Insurance Reauthorization and Job Cre-ation Act of 2010 was signed into law December 17 2010 Among its provisions the Act temporarily lowered the social security payroll tax rate on employees and the corresponding tier I payroll tax rate on railroad employees by 2 percentage points for calendar year 2011 The Temporary Payroll Tax Cut Continuation Act of 2011 extending the temporary payroll tax reduction through February 2012 was signed into law December 23 2011 The Middle Class Tax Relief and Job Creation Act of 2012 signed into law February 22 2012 extended the reduction through 2012

On June 26 2013 the Supreme Court found unconstitutional Section 3 of the Defense of Marriage Act which had prevented the Federal Government from recognizing marriages of same-sex couples As a result the RRB began accepting applications for benefits from those eligible spouses in same-sex marriages who were validly licensed under State law On June 26 2015 the Supreme Court further found that the Constitution required all States to license same-sex marriages and to recognize lawfully licensed same-sex marriages performed in other States

22 2018 INFORMATIONAL CONFERENCE HANDBOOK

EMPLOYMENT PAYROLLS AND TAX COLLECTIONS

Railroad employment has varied considerably over the years The total number of employees with some service in a year has ranged from a high of 3 million in the war year 1945 to a low of 247000 in calendar year 2010 In 2016 total employment was 253000 the first decrease since 2010 The average number employed has var-ied between a high of 17 million in the war years 1944-45 to a low of approximate-ly 221000 in 2010 Average employment in 2016 fell 16000 from the previous year to 231000

In 2017 total railroad payroll was an estimated $199 billion while the taxable payrolls (on the $127200 tier I and the $94500 tier II annual bases) were an esti-mated $186 billion and $172 billion respectively Tier I payroll includes miscella-neous compensation such as sick pay The employee tax rates for 2017 were 765 percent for tier I and 49 percent for tier II Employer rates were 765 percent and 131 percent respectively The tier I rate is divided into 62 percent for retirement disability and 145 percent for Medicare hospital insurance While the 62 percent rate applied to the $127200 annual base all of an employeersquos compensation was subject to the 145 percent Medicare tax Employees pay an additional 09 percent in Medicare hospital insurance taxes on earnings above $200000 (for those who file an individual return) or $250000 (for those who file a joint return) Retirement tax collections in 2017 were approximately $60 billion

benefits awarded since inception of the railroad retirement program

through fiscal year 2017

bull 2061000 to RETIRED EMPLOYEES bull 1233000 to SPOUSES bull 2534000 to SURVIVORS

at the end of fiscal year 2017 517000 BENEFICIARIES were being paid $125 billion a year in benefits

SCOPE OF RRB OPERATIONS

2Provisions of the Railroad Retirement Act

Service performed for a covered employer or as an employee representative is creditable toward all types of benefits under the Railroad Retirement Act Covered employers include interstate railroads and their affiliates engaged in railroad-conshynected operations as well as employer associations and national railroad labor orshyganizations and their subordinate units In some cases military service may be counted as railroad service

Service for an employer is creditable if it is compensated and the employee is subject to the continuing supervision of the employer Benefits are based on earnings credits and months of service Earnings are creditable up to certain annual maximums on the amount of compensation subject to railroad retirement taxes as shown in the table at the end of the next chapter Credit for a month of railroad service is given for every month in which an employee had some compensated service for an emshyployer covered by the Railroad Retirement Act even if only one dayrsquos service is performed in the month (However local lodge compensation earned after 1974 is disregarded for any calendar month in which it is less than $25) Special rules may apply for crediting of service months resulting from a settlement for an on-the-job injury

Benefits are based on earnings credits and months of service

23

24 2018 INFORMATIONAL CONFERENCE HANDBOOK

The basic requirement for railroad retirement annuities is at least 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if such service was performed after 1995 Service months need not be conshysecutive

Additional service months may be deemed in some cases where an employee does not actually work in every month of the year For additional service months to be deemed the employeersquos compensation for the year up to the tier II maximum must exceed an amount equal to 112 of the tier II maximum multiplied by the numshyber of service months actually worked

The excess amount is then divided by 112 of the tier II maximum the result rounded up to a whole number equals the maximum number of months that may be deemed as service months for that year The employee must be in an employment relation (on an approved leave of absence) with a covered railroad employer or be an employee representative during a deemed service month An employee may never be credited with more than 12 service months in any calendar year

Except for benefits paid for on-the-job injuries sickness benefits are subject to tier I railroad retirement taxes if paid within 6 months after the month in which the employee last worked They are credited as compensation for tier I benefits but are not credited as service months

Basic Service Requirement for Railroad Retirement Annuities

120 months of creditable railroad service

or

60 months if such service was performed after 1995

PROVISIONS OF THE RAILROAD RETIREMENT ACT 25 CREDITABLE MILITARY SERVICE

Military service may be credited towards retirement benefits under certain conditions To be creditable as compensation under the Railroad Retirement Act service in the US Armed Forces must be preceded by railroad service in the same or preceding calendar year With the excepshytions noted the employee must also have entered active military service when the United States was at war or in a state of national emergency or have served in the Armed Forces involuntarily

If military service began during a war or national emergency period any active duty service the employee was required to continue in beyond the end of the war or national emergency is creditable except that volshyuntary service extending beyond September 14 1978 is not creditable

Railroad workers who voluntarily served in the Armed Forces beshytween June 15 1948 and December 15 1950 when there was no deshyclared national state of emergency in force can be given railroad retireshyment credit for their military service if they performed railroad service in the year they entered or the year before they entered military service and if they returned to rail service in the year their military service ended or in the following year and had no intervening nonrailroad employment

war and national emergency periods

August 2 1990 to date as yet undetermined December 16 1950 to September 14 1978 September 8 1939 to June 14 1948

26 2018 INFORMATIONAL CONFERENCE HANDBOOK

SERVICE AND EARNINGS RECORDS

The RRB maintains a record of all covered railroad service and creditable earnshyings after 1936 The information is recorded under the employeersquos social security account number used by the employer to report service and compensation to the RRB

Each year employees in the industry receive a Certificate of Service Months and Compensation (Form BA-6) from the RRB This statement is important beshycause it provides both a current and cumulative record of an employeersquos railroad service and compensation It inshycludes deemed service months

Each year employees in the industry separation allowances and sevshyreceive a Certificate of Service Months erance payments as well as mis- and Compensation (Form BA-6) fromcellaneous compensation such the RRB which provides both a current

as taxable sickness payments and cumulative record of an employeersquos It also includes the cumulative railroad service and compensationamounts of railroad retirement payroll taxes paid by the employshyee over and above social security equivalent payroll taxes and reflects creditable military service if the service has previously been reported to the RRB Employees are encouraged to carefully review Form BA-6 for accuracy upon receipt

Railroad employees who have already established a Benefit Online Services account at RRBgov can view their individual railroad retirement records of service months and compensation through a feature called View Service amp Compensation History Though this alternative record does not replace Form BA-6 it does make similar information available online This information is only available to employshyees with RRB online accounts

If an employee disagrees with the information shown on Form BA-6 he or she should notify the RRB as early as possible The law limits the period during which

PROVISIONS OF THE RAILROAD RETIREMENT ACT 27 corrections can be made to 4 years When reporting an inaccuracy on Form BA-6 all correspondence must include the employeersquos social security number Employees can mail this information to any RRB field office or to RRB headquarters at

Protest Unit - CESC US Railroad Retirement Board

844 North Rush Street Chicago IL 60611-1275

AGE AND SERVICE DISABILITY AND SUPPLEMENTAL ANNUITIES

The basic requirement for a regular employee annuity is 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if performed after 1995 Benefits then become payable after the employee meets certain other requirements which depend in turn on the type of annuity payable

An AGE AND SERVICE ANNUITY can be paid to

Employees with 30 or more years of creditable service They are eligible for regular annuities based on age and service the first full month they are age 60 Early retirement reductions are applied if the employee first became eligible for a 6030 annuity July 1 1984 or later and retired at ages 60 or 61 before 2002

Employees with 10-29 years of creditable service or 5-9 years if at least 5 years were after 1995 They are eligible for regular annuities based on age and service the first full month they are age 62 Early retirement annuity reductions are applied to annuities awarded before the employeersquos full retirement age as explained on the next page

EMPLOYEE AND SPOUSE ANNUITIES

28 2018 INFORMATIONAL CONFERENCE HANDBOOK

Full retirement age means the age at which an employee can receive full benefits with no reduction for early retirement This ranges from age 65 to age 67 depending upon the year of birth Reduced annuities are still payable at age 62 to those with less than 30 years of service but the maximum reduction is gradually rising to 30 percent from 20 percent by the year 2022 as a result of social security legislation enacted in 1983 Part of the annuity (tier II) is not reduced beyond 20 percent if the employee had any creditable railroad service before August 12 1983 Railroad retirement tiers are explained on pages 33 and 35

The annuities of employees reshytiring after the first full month they are age 60 (for those with 30 years of service) can begin with the first day they are eligible with up to 6 monthsrsquo retroactivity The annuities of employees retiring at or after age 62 with an age reduction (for those with less than 30 years of service) can begin with the first day of the month in which the application is filed

An annuity based on age cannot be paid until the employee stops railroad emshyployment files an application and gives up any rights to return to work for a railshyroad employer

IF EMPLOYEE WAS BORN

FULL RETIREMENT AGE IS

1937 or earlier 65

1938 65 and 2 months

1939 65 and 4 months

1940 65 and 6 months

1941 65 and 8 months

1942 65 and 10 months

1943 through 1954 66 1955 66 and 2 months

1956 66 and 4 months

1957 66 and 6 months

1958 66 and 8 months

1959 66 and 10 months

1960 or later 67

A person attains a given age the day before his or her birthday Consequently someone born on January 1 is considered to have attained his or her given age on December 31 of the previous year

Table 1--Determining Full Retirement Age

PROVISIONS OF THE RAILROAD RETIREMENT ACT 29

A DISABILITY ANNUITY can be paid for

Total disability at any age if an employee is disabled for all regular work and has at least 10 years (120 months) of creditable railroad service Employees with 5-9 years of creditable railroad service if at least 5 years were after 1995 may qualify for tier I only (as defined on page 33) before retirement age on the basis of total disability if they also meet certain social security earnings requirements An age reshyduced tier II amount would be payable at age 62

TOTAL DISABILITY

means a physical or mental disability that prevents any regular employment

Occupational disability at age 60OCCUPATIONAL DISABILITY if an employee has at least 10 years

(120 months) of railroad service or at means an employee is disabled for his or any age if the employee has at leasther regular railroad occupation (generally

the job he or she worked the longest in the 20 years (240 months) of service last 5 years) and the condition is expected when the employee is disabled for his to last at least 12 months or longer or her regular railroad occupation

A current connection with the rail-road industry is also required for an annuity based on occupational rather than total disability

A 5-month waiting period beginning with the month after the month of the onset of disability is required before any disability annuity payments can begin

An employee can be in compensated service while filing a disability annuity application as long as the compensated service is not active service and terminates within 90 days from the date of filing However in order for a supplemental annuity to be paid by the RRB or for an eligible spouse to begin receiving annuity payshyments a disabled annuitant under full retirement age must relinquish employment rights

A SUPPLEMENTAL ANNUITY can be paid at

Age 60 if the employee has at least 30 years of creditable railroad service

Age 65 if the employee has 25-29 years of railroad service

30 2018 INFORMATIONAL CONFERENCE HANDBOOK

In addition to the service requirements a current connection with the railroad industry is required for all supplemental annuities An employee must also be reshyceiving a railroad retirement age and service or disability annuity before a suppleshymental annuity can be paid Eligibility is further limited to employees who had at least one month of creditable rail service before October 1981

CURRENT CONNECTION

An employee who worked for a railroad in at least 12 months in the Once a current connection 30 months immediately preceding is established at the time the

railroad retirement annuity be-the month his or her railroad retire- gins an employee never loses ment annuity begins will meet the it no matter what kind of work current connection requirement for is performed thereafter a supplemental annuity occupationshyal disability annuity or the survivor benefits described later in this chapter (If the employee died before retirement railroad service in at least 12 months in the 30 months before the month of death will meet the current connection requirement for the purpose of paying survivor benefits)

If an employee does not qualify for a current connection on this basis but has 12 months of service in an earlier 30-month period he or she may still meet the current connection requirement This alternative generally applies if the employee did not have any regular employment outside the railroad industry after the end of the last 30-month period which included 12 months of railroad service and before the month the annuity begins or the month of death Full or part-time work for a nonrailroad employer in the interval between the end of the last 30-month period inshycluding 12 months of railroad service and the month an employeersquos annuity begins or the month of death if earlier can break a current connection

Self-employment in an unincorporated business will not break a current conshynection however self-employment can break a current connection if the business is incorporated

Working for certain US Government agencies--Department of Transportashytion National Transportation Safety Board Surface Transportation Board Transshy

PROVISIONS OF THE RAILROAD RETIREMENT ACT 31

portation Security Administration National Mediation Board Railroad Retirement Board--will not break a current connection State employment with the Alaska Railshyroad as long as that railroad remains an entity of the State of Alaska will not break a current connection Also railroad service in Canada for a Canadian railroad will neither break nor preserve a current connection

A current connection can also be maintained for purposes of supplemental and survivor annuities but not for an occupational disability annuity if the employee completed 25 years of railroad service was involuntarily terminated without fault from his or her last job in the railroad industry and did not thereafter decline an offer of employment in the same class or craft in the railroad industry regardless of the distance to the new position A termination of railroad service is considered volshyuntary unless there was no choice available to the individual to remain in service Generally where an employee has no option to remain in the service of his or her railroad employer the termination of the employment is considered involuntary reshygardless of whether the employee does or does not receive a separation allowance However each case is decided by the RRB on an individual basis This exception to the normal current connection requirements became effective October 1 1981 but only for employees still living on that date who left the rail industry on or after October 1 1975 or who were on leave of absence on furlough or absent due to injury on October 1 1975

SPOUSE ANNUITIES

The age requirements for a spouse annuity depend on the employeersquos bull age and date of retirement bull years of railroad service

Retired employee age 60 with 30 years of service

If a retired employee with 30 years of service is age 60 the employeersquos spouse is also eligible for an annuity the first full month the spouse is age 60 Certain early retirement reductions are applied if

the employee first became eligible for a 6030 annuity July 1 1984 or later and reshytired at ages 60 or 61 before 2002 If the employee was awarded a disability annuity has attained age 60 and has 30 years of service the spouse can receive an unreduced

32 2018 INFORMATIONAL CONFERENCE HANDBOOK

annuity the first full month she or he is age 60 regardless of whether the employee annuity began before or after 2002 as long as the spousersquos annuity beginning date is after 2001

If a retired employee with less than 30 years of service is age 62 the employeersquos spouse is also elishygible for an annuity the first full month the spouse is age 62 Early retirement reductions are applied to the spouse annuity if the spouse retires prior to her or his full retirement age Full reshytirement age for a spouse is gradually rising to age 67 just as for an employee depending on the year of birth Reduced benefits are still payable at age 62 but the maximum reduction will be 35 percent rather than 25 percent by the year 2022 The tier II portion of a spouse annuity (as defined on page 35) is not reduced beyond 25 percent if the employee had any creditable railroad service before August 12 1983

A spouse of an employee receiving an age and service annuity (or a spouse of a disability anshynuitant who is otherwise eligible for an age and service annuity) is eligible for a spouse annuity at any age if he or she is caring for the employshy

eersquos unmarried child under age 18 The spouse is also eligible if caring for the emshyployees disabled child of any age who became disabled before age 22

The employee must have been married to the spouse for at least 1 year unless the spouse is the natural parent of their child or the spouse was eligible or potentialshyly eligible for a railroad retirement widow(er)rsquos parentrsquos or disabled childrsquos annushyity in the month before marrying the employee or the spouse was previously marshyried to the employee and received a spouse annuity A spouse of an employee is not eligible for railroad retirement benefits based solely on the spouses own disability

An annuity may also be payable to the dishyvorced wife or husband of a retired employee if their marriage lasted for a period of at least 10 years immediately before the date the divorce beshycame final both have attained age 62 for a full month and the divorced spouse is not currently married The amount of a divorced spousersquos annuity is in effect equal to what social security would pay in the same situation and therefore less

Retired employee age 62 with less than 30 years of service

Spouse of an age and service employee caring for the em-ployeersquos unmarried child

Divorced spouse if marriage lasted for at least 10 years

PROVISIONS OF THE RAILROAD RETIREMENT ACT 33

than the amount of the spouse annuity otherwise payable (tier I only) A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for a period of not less than 2 years the employee and forshymer spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings Also a court-ordered partition payment may be paid even if the employee is not entitled to an annuity provided that the employee has 10 years of railroad service or 5 years after 1995 and both the employee and former spouse are 62

ANNUITY ESTIMATES

Railroad employees with RRB online accounts can get estimates of future anshynuities for themselves and their spouses via the Benefit Online Services section of RRBgov Instructions for establishing an online account are available by clicking on the link for requesting a Password Request Code (PRC) in that same section The estimates are based on the service and earnings records maintained by the RRB and show the earliest date the employee can receive a full annuity and if applicable the earliest date he or she can receive a reduced annuity Employees can also contact any RRB field office to request annuity estimates with approximate figures Estishymates can only be furnished for employees with at least 10 years of railroad service or 5 years of service after 1995 it is not possible to provide a precise amount if the employee is not currently eligible

TWO-TIER ANNUITIES AND DUAL BENEFITS

Regular railroad retirement annuities are calculated under a two-tier formula The annuity formula components for employees and spouses are described later in this chapter

The FIRST TIER is based on railroad retirement credits and any social security credits an employee has acquired The amount of the first tier is calculated using social security formulas but with railroad retirement age and service requirements

(Text continues on page 35)

34 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 2--Fiscal year 2017 annuity awards to 30-year employees retiring before full retirement age

AVERAGE AWARD

AVERAGE YEARS OF SERVICE

Employee $4079 372

Employee and spouse 5701 374

Note--For employees with at least 25 years of service and a current conshynection a supplemental annuity may be payable The supplemental annuity amount is $23 plus $4 for each year of service over 25 years up to a maxshyimum of $43 for employees with 30 or more years of service Figures in the tables on this page include supplemental annuity amounts

Table 3--Fiscal year 2017 annuity awards based on service averaging less than 30 years

AVERAGE AVERAGE YEARS AWARD OF SERVICE

Employee full retirement age or over $2557 213

Employee full retirement age or over and spouse 3631 234

Employee under full retirement age with less than 30 years of service 1845 159

Employee under full retirement age with less than 30 years of service and spouse 2549 162

Employee retiring because of disability 2726 209

PROVISIONS OF THE RAILROAD RETIREMENT ACT 35

The SECOND TIER is based on railroad retirement credits only and may be compared to the retirement benefits paid over and above social security benefits to workers in other industries

An additional amount may also be payable as part of the regular annuity if an employee qualified for both railroad retirement and social security benefits before 1975 and met certain vesting requirements

Employees with Railroad Retirement and Social Security Benefits If a retired or disabled railroad retirement annuitant is also awarded social secushy

rity benefits the Social Security Administration determines the amount of the social security benefit due The RRB then issues a combined monthly benefit payment after the railroad retirement annuity (tier I only) has been reduced by the amount of the social security benefit

The tier I portion of an employee annuity is based on his or her combined railshyroad retirement and social security credits figured under social security formulas and approximates what social security would pay if railroad work were covered by that system It is reduced by the amount of any actual social security benefit paid on the basis of the employeersquos nonrailroad employment in order to prevent a duplicashytion of benefits based on social security-covered earnings The tier I amount is also reduced in the event a social security benefit is payable to the employee on the basis of another personrsquos earnings This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time An annuitant is required to advise the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase (other than for a cost-of-living increase)

If an employee qualified for dual benefits before 1975 and met certain vesting requirements he or she can receive an additional annuity amount which offsets in part the dual benefit reduction This additional amount which reflects the dual benefits payable prior to 1975 is called the vested dual benefit payment The vested dual benefit cannot be paid prior to the date the employee could begin to receive a social security benefit if he or she were to file for such a benefit

36 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employees who worked for a railroad in 1974 and retired after 1974 are conshysidered vested if on December 31 1974 they had both at least 10 years of railroad service and sufficient quarters of coverage to qualify for a social security retireshyment benefit at age 62 Employees qualified on this basis are eligible for vested dual benefit amounts computed on their railroad and social security credits through December 31 1974

Employees who did not work for a railroad in 1974 but had 25 Limitations on or more years of railroad service Vested Dual Benefitsbefore 1975 or employees with 10 years of railroad service before Vested dual benefit payments are 1975 who had either a current conshy funded by annual appropriations from

general US Treasury revenues These nection with the railroad industry appropriations account for less than one on December 31 1974 or at the percent of total financing sources for the

time their annuities began are also railroad retirement system considered vested under the same Payment of vested dual benefits is deshyconditions as persons who were pendent on the time and amount of such

appropriations If the appropriation in a railroad employees in 1974 fiscal year is for less than the estimated

Other employees who comshy total vested dual benefit payments indishyvidual payments must be reduced pleted 10 or more years of railroad

service before 1975 but left the inshydustry before 1974 are considered vested only if they had sufficient social security quarters of coverage to qualify for a social security retirement benefit as of the end of the year before 1974 in which they left the railroad industry Their vested dual benefit amount is based only on credits acquired through their last year of pre-1975 railroad service instead of through December 31 1974

Employees who do not qualify for a vested dual benefit may be eligible for a refund of any excess social security taxes they paid (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 37

Employees with Public Non-Profit or Foreign Pensions For employees first eligible for a railroad retirement annuity and a Federal

State or local government pension after 1985 there may be a reduction in the tier I amount for receipt of a public pension based in part or in whole on employment not covered by social security or railroad retirement after 1956 This may also apshyply to certain other payments not covered by railroad retirement or social security such as payments from a nonprofit organization a foreign government or a foreign employer This does not include military service pensions payments by the Departshyment of Veterans Affairs or certain benefits payable by a foreign government as a result of a totalization agreement between that government and the United States

Workersrsquo Compensation If an employee is receiving a disability annuity the tier I portion may under

certain circumstances be reduced for receipt of workersrsquo compensation or public disability benefits

If an annuitant becomes entitled to any pensions or benefits as described above the RRB must be notified immediately

SPOUSES WITH DUAL BENEFITS

Social Security Benefits The tier I portion of a spouse annuity is reduced for any social security entitleshy

ment regardless of whether the social security benefit is based on the spousersquos own earnings the employeersquos earnings or the earnings of another person This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time

Public Pensions The tier I portion of a spouse annuity may also be reduced for receipt of any

Federal State or local government pension separately payable to the spouse based

38 2018 INFORMATIONAL CONFERENCE HANDBOOK

on the spousersquos own earnings The reduction generally does not apply if the emshyployment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For spouses subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

Employee Annuity If both individuals in a marriage are railroad employees and both started railroad

employment after 1974 the amount of any spouse or divorced spouse annuity is reshyduced by the amount of the employee annuity to which the spouse is also entitled

If either one had some railroad service before 1975 the spouse tier I amount is reduced by the amount of the railroad employee tier I to which the spouse is entitled and that initial reduction is restored in the spouse tier II amount The spouse tier I amount cannot be reduced below zero

MINIMUM GUARANTY

Under a special minimum guaranty provision railroad families will not reshyceive less in monthly benefits than they would have if railroad earnings were covered by social security rather than railroad retirement laws This guaranty is intended to cover situations in which one or more members of a family would otherwise be eligible for a type of social security benefit which is not provided unshyder the Railroad Retirement Act

For example social security provides childrenrsquos benefits when an employee is totally disabled retired or deceased The Railroad Retirement Act only provides childrenrsquos benefits if the employee is deceased Therefore if a retired rail employee has children who would otherwise be eligible for a benefit under social security the employeersquos annuity would be increased to reflect what social security would pay the family unless the annuity is already more than that amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 39

COST-OF-LIVING INCREASES IN EMPLOYEE AND SPOUSE RETIREMENT BENEFITS

After retirement the tier I portions of both employee and spouse annuities are generally increased for higher living costs at the same time and by the same pershycentage as social security benefits These increases effective December 1 and inshycluded in the January payment are based on the rise in the Consumer Price Index from the third quarter of the last year a cost-of-living adjustment became effective to the corresponding period of the current year Generally if the Index increases by five percent for example the tier I portion increases by five percent Under certain circumstances the increase can be based on average national wage increases rather than price increases

If an annuitant is receiving both railroad retirement and social security benefits the increased tier I portion is reduced by the increased social security benefit

The tier II portions of retired employee and spouse annuities are normally inshycreased by 325 percent of the increase in the Consumer Price Index

Tier II cost-of-living increases are generally payable at the same time as tier I cost-of-living increases Vested dual benefit payments and supplemental annuities are not increased by these cost-of-living adjustments

WORKING AFTER RETIREMENT

Neither a regular annuity a supplemental annuity nor a spouse annuity is payshyable for any month in which a retired employee regardless of age works for an employer covered under the Railroad Retirement Act including labor organizashytions However service for less than $25 a month to a local lodge will not prevent payment of the annuity for that month Regardless of the amount of salary work by a local lodge or division secretary collecting insurance premiums is considered railroad work and therefore no annuity is payable for any month in which such activity occurs

40 2018 INFORMATIONAL CONFERENCE HANDBOOK

Retired employees and spouses who work for their last pre-retirement nonrailshyroad employer are subject to an earnings deduction Last pre-retirement nonrailroad employment is employment that continues through the annuity beginning date or ended within 6 months of the annuity beginning date Such employment will reduce tier II benefits and supplemental annuity payments which are not otherwise subject to earnings deductions by $1 for each $2 of earnings received subject to a maxishymum reduction of 50 percent These reductions continue after full retirement age Work that begins on the same day as the annuity beginning date is not last pre-reshytirement nonrailroad employment

Retired employees and spouses who have not yet attained full social security retirement age which ranges from age 65 for those born before 1938 to age 67 for those born in 1960 or later may also be subject to additional earnings deductions for any earnings in or outside the rail industry that exceed certain exempt amounts The tier I and vested dual benefits of these employee and spouse annuities are subshyject to deductions if earnings exceed the exempt amounts applicable to social secushyrity beneficiaries Prior to the calendar year in which full social security retirement age is attained the deduction is $1 in benefits for every $2 of annual earnings exshyceeding an exempt amount ($17040 in 2018)

If the employee or spouse has a tier I reduction for social security benefits the tier I benefit is not reduced for excess earnings

In the first year in which an employee subject to these earnings deductions is both entitled to an annuity and has a non-work month a full tier I and vested dual benefit can be paid for those months in which the employee had low earnings or did not have substantial self-employment no matter what total earnings for the year were A non-work month is one in which the employee neither earns over 112th of the annual exempt amount nor has substantial self-employment Non-work months can be claimed in only one calendar year which need not necessarily be the first year of entitlement

In the calendar year in which an individual attains full social security retirement age deductions of $1 are made in tier I and vested dual benefits for every $3 earned in excess of an exempt amount ($45360 in 2018) but only counting those earnings in the months prior to the month full retirement age is attained These tier I and

PROVISIONS OF THE RAILROAD RETIREMENT ACT 41

vested dual benefit deductions stop effective with the month full retirement age is attained

Earnings received for services rendered plus any net earnings from self-emshyployment are considered when assessing deductions for earnings Interest divishydends certain rental income or income from some stocks bonds or other investshyments are not generally considered earnings for this purpose

Annuitants under full retirement age who work after retirement and expect that their earnings for a year will be more than the annual exempt amount must promptshyly notify the RRB and furnish an estimate of their expected earnings in order to prevent an overpayment and penalties They should also notify the RRB if their original estimate changes significantly Annuitants should report final earnings by April 15 of the following year

Retired employees and spouses who return to work for a railroad or for their last pre-retirement nonrailroad employer must notify the RRB regardless of earnings or age

A spouse benefit is subject to reductions not only for the spousersquos earnings but also for the earnings of the employee regardless of whether the earnings are from service for the last pre-retirement nonrailroad employer or other post-retirement employment

A spouse annuity is not payable for any month in which the employeersquos annuity is not payable or for any month in which the spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse annuity is not payable for any month in which the divorced spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for at least 2 years the employee and former spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings

Disability Work Restrictions If an annuity is based on disability there

A disability annuitant must report anyearnings

42 2018 INFORMATIONAL CONFERENCE HANDBOOK

are certain work restrictions that can affect payment depending on the amount of earnings The annuity is not payable for any month in which the disabled employee annuitant works for an employer covered under the Railroad Retirement Act The annuity is not payable for any month in 2018 in which the disabled employee anshynuitant earns over $920 in any employment or net self-employment exclusive of disability-related work expenses Withheld payments will be restored if earnings for the year are less than $11500 after deduction of disability-related work expenses Failure to report such earnings could involve a significant penalty charge

These disability work restrictions cease upon a disabled employee annuitantrsquos attainment of his or her full retirement age This transition is effective no earlier than full retirement age even if the annuitant had 30 years of service Earnings deshyductions continue to apply to those working for their last pre-retirement nonrailroad employer

If a disabled employee annuitant works before his or her full retirement age this may also raise a question about the possibility of that individualrsquos recovery from disability regardless of the amount of earnings Consequently any work activity must be reported promptly to avoid overpayments which are recoverable by the RRB and may also include significant penalties

WHEN ANNUITIES STOP

Payment of any annuity stops upon the annuitantrsquos death and the annuity is not payable for any day in the month of death

A disability annuity stops after the employee recovers from the disability it can be reinstated if the disabling condition recurs

A spouse annuity stops if the employeersquos annuity terminates or the spouse anshynuity was based on caring for a child and the child is no longer under age 18 or disabled or the child is no longer in the spousersquos care However the spouse annuity may continue if she or he is qualified without the child or it can resume when the spouse attains a qualifying age

While a divorce ends eligibility for a spouse annuity a divorced spouse may

PROVISIONS OF THE RAILROAD RETIREMENT ACT 43 under conditions described previously qualify for a divorced spousersquos annuity

A divorced spousersquos annuity stops upon remarriage or upon entitlement to a social security benefit based on her or his own earnings if the unreduced social seshycurity benefit is equal to or greater than one-half of the employeersquos unreduced tier I amount A divorced spousersquos annuity may be reduced or stopped if the divorced spouse is also entitled to a railroad retirement annuity

Annuities are payable to surviving widow(er)s children and certain other deshypendents Lump-sum benefits are payable after the death of a railroad employee only if there are no qualified survivors of the employee immediately eligible for monthly annuities With the exception of a residual lump-sum death benefit elishygibility for survivor benefits depends on whether or not the employee was insured under the Railroad Retirement Act at the time of death

An employee is insured if he or she has at least 10 years (120 months) of railshyroad service or 5 years (60 months) performed after 1995 and a current connection with the railroad industry as of the month the annuity begins or the month of death whichever occurs first The current connection requirement is described earlier in this chapter

It is important to notify the Railroad Retirement Board promptly if one of the above changes occurs Failure to report can result in an overpayment which the RRB will take action to recover sometimes with interest or penalshyties Failure to report changes promptly or making a false statement can also result in a fine or imprisonment

SURVIVOR BENEFITS

survivor annuities are payable to

widow(er)s surviving divorced spouses remarried widow(er)s unmarried children parents

44 2018 INFORMATIONAL CONFERENCE HANDBOOK

If a deceased employee was not so insured jurisdiction of any survivor benefits payable is transferred to the Social Security Administration and any survivor benshyefits are paid by that agency instead of the RRB Regardless of which agency has jurisdiction the deceased employeersquos railroad retirement and social security credits will be combined for the purpose of benefit computations

WIDOWSrsquo AND WIDOWERSrsquo ANNUITIES

Widowsrsquo and widowersrsquo annuities are payable at

Age 60 age reductions are applied to annuities awarded before full retirement age The eligibility age for unreduced annuities is gradually rising from age 65 to age 67 depending on the year of birth

Ages 50-59 if the widow(er) is totally disabled and unable to work in any regushylar employment The disability must have begun within 7 years after the employeersquos death or within 7 years after the termination of an annuity based on caring for a child of the deceased employee In most cases a 5-month waiting period is required after the onset of disability before a disability annuity can begin

Any age if the widow(er) is caring for an unmarried child of the deceased employee under age 18 or a disabled child of any age who became disabled before age 22

Generally the widow(er) must have been married to the employee for at least 9 months prior to death unless she or he was the natural or adoptive parent of their child the employeersquos death was accidental or while on active duty in the US Armed Forces the widow(er) was potentially entitled to certain railroad retirement or social security benefits in the month before the month of marriage or the marshyriage was postponed due to State restrictions on the employees prior marriage and divorce due to mental incompetence or similar incapacity

Survivor annuities may also be payable to a surviving divorced spouse or re-married widow(er) Benefits are limited to the amount social security would pay and therefore are less than the amount of the survivor annuity otherwise payable

(Text continues on page 47)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 45

Table 4--Number and average amount of benefits awarded under the Railroad Retirement Act fiscal year 2017

AVERAGE TYPE OF BENEFIT NUMBER AMOUNT

MONTHLY BENEFITS

Full retirement age or over 1800 $2550

Less than full retirement age Unreduced 4900 4049 Reduced 2400 1845 Age retirements total 9100 3159

Disability retirements 1600 2723 Regular employee annuities total 10700 3095

Supplemental employee annuities1 5200 41

Unreduced spouse annuities 7300 1269

Reduced spouse annuities 2700 548

Divorced spouse annuities 700 669 Spouse and divorcedspouse annuities total 10800 1047

Aged widow(er)s 5500 2113

Disabled widow(er)s 100 1752

Widowed mothers and fathers 100 1806

Remarried widow(er)s 100 1189

Divorced widow(er)s 700 1209

Children 400 1368

Parents2 844 Survivor annuities total 6900 1948

Total3 33500

LUMP-SUM BENEFITS

Lumpshysum death payments 2500 $933

Residual payments2 1040

Total 2500

1 Averages are after courtshyordered partitions 2 Fewer than 50 3 Excludes partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Note--Detailed figures may not add to totals shown because of rounding

46 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 5--Number and average amount of monthly benefits under the Railroad Retirement Act in current payment status

on September 30 2017

TYPE OF BENEFIT NUMBER AVERAGE AMOUNT

Full retirement age or over Less than full retirement age Unreduced Reduced Age retirements total

Disability retirements1

Under full retirement age Full retirement age and over Regular employee annuities total Supplemental employee annuities2

Unreduced spouse annuities Reduced spouse annuities Divorced spouse annuities Spouse and divorcedspouse annuities total

Aged widow(er)s Disabled widow(er)s Widowed mothers and fathers

Remarried widow(er)s Divorced widow(er)s Children Parents3

Survivor annuities total Partition payments4

Total

21300

107400 61700 190300

46200 28000 264500

122100 96300 45500 5100

146900

87800 3500

600 3000 9700 8500 113200 1700

648300

$2131

3487 1621

2731

2401 2691 2669

42

1261

514

632

1008

1664

1326

1878

1071

1078

1078

907 1544

315

1 Full retirement age also known as normal retirement age is gradually increasing from age 65 to age 67 over a 22shyyear period For those born 121943shy111955 the normal retirement age is 66 Annuities to disability retirees at full retirement age and over are payable as age annuities 2 Averages are after courtshyordered partitions 3 Fewer than 50 4 Limited to partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Partition payments from employees on the rolls are included with the employees annuities Note--Detailed figures may not add to totals shown because of rounding

PROVISIONS OF THE RAILROAD RETIREMENT ACT 47

However a former spouse may be paid a court-ordered partition amount even after the employees death

A surviving divorced spouse may qualify if she or he was married to the emshyployee for a period of at least 10 years immediately before the date the divorce became final is unmarried or remarried under the conditions described in the next paragraph and is age 60 or older (50 if disabled) A surviving divorced spouse who is unmarried can qualify at any age if caring for the employeersquos child and the child is under age 16 or disabled in which case the 10-year marriage requirement does not apply

The portion of a survivor annuity equivalent to a social security benefit (tier I) may be paid to a widow(er) or surviving divorced spouse who remarries after age 60 or to a disabled widow(er) or disabled surviving divorced spouse who remarries after age 50 however remarriage prior to age 60 (or age 50 if disabled) would not prevent eligibility if such remarriage ends Such social security level benefits may also be paid to a younger widow(er) or surviving divorced spouse caring for the employeersquos child who is under age 16 or disabled if the remarriage is to a person entitled to railroad retirement or social security benefits or the remarriage ends

OTHER SURVIVOR ANNUITIES

Other survivor annuities are payable to

An unmarried child under age 18

An unmarried child age 18 in full-time attendance at an elementary or sec-ondary school or in approved homeschooling until the student attains age 19 or the end of the school term in progress when the student attains age 19 In most cases where a student attains age 19 during the school term benefits are limited to the 2 months following the month age 19 is attained These benefits will be terminated earlier if the student marries graduates or ceases full-time attendance

An unmarried disabled child over age 18 if the child became totally disabled before age 22

An unmarried dependent grandchild meeting any of the requirements deshyscribed above for a child if both the grandchildrsquos parents are deceased or disabled

48 2018 INFORMATIONAL CONFERENCE HANDBOOK

A parent at age 60 who was dependent on the employee for at least half of the parentrsquos support If the employee was also survived by a widow(er) surviving dishyvorced spouse or child who could ever qualify for an annuity the parentrsquos annuity is limited to the amount that social security would pay (tier I)

SURVIVOR ANNUITY ESTIMATES

Survivors can call the agency toll-free (1-877-772-5772) to speak with a field service representative and request an annuity estimate Active or retired employees who are concerned about the amount of benefits which would be payable to their survivors may also receive estimates from field service staff Pre-retirement counshyseling is also available by appointment at any RRB field office

The following information may be helpful in providing an idea of the amount of potential survivor benefits

The average annuity awarded to widow(er)s in fiscal year 2017 excluding reshymarried widow(er)s and surviving divorced spouses was $2103 a month On the average children received $1368 a month while total family benefits for widshyow(er)s with children averaged $4189 a month The average annuity awarded to remarried widow(er)s or surviving divorced spouses in fiscal year 2017 was $1206 a month

SURVIVOR ANNUITY TIERS

Survivor annuities like retirement annuities consist of tier I and tier II components

Based on deceased employeersquos combined railroad retirement and TIER I social security credits and generally equivalent to the amount

that would be payable under social security

Percentages of deceased employeersquos tier II amount (similar to TIER II a private pension tier II benefit is based on employees railroad

earnings and service months)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 49

Survivor annuity amounts may also be determined under certain minimum proshyvisions which guarantee that a widow(er)rsquos annuity will be at least equal to the two-tier benefit the deceased employee would have received at the time of the award of the widow(er)rsquos annuity minus certain reductions including those for age and receipt of social security benefits and no less than the spouse annuity she or he was receiving just prior to the employeersquos death

SURVIVORS WITH DUAL BENEFITS

Social Security Benefits The tier I portion is reduced by the amount of any social security benefits reshy

ceived by a survivor annuitant whether the social security benefits are based on the survivorrsquos own earnings or those of another individual This reduction follows the principles of social security law which in effect limit payment to the higher of any two or more benefits payable to an individual at one time When both railshyroad retirement annuities and social security benefits are payable they are genershyally combined into a single payment issued through the RRB A survivor annuitant must notify the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase other than for a cost-of-living increase

Public Pensions The tier I portion of a widow(er)rsquos annuity may be reduced for receipt of any

Federal State or local government pension based on the widow(er)rsquos own earnings The reduction generally does not apply if the employment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For those subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

50 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employee Annuity If a widow(er) is also entitled to a railroad retirement employee annuity and

both the widow(er) and the deceased employee started railroad employment after 1974 the survivor annuity (tier I and tier II) payable to the widow(er) is reduced by the full amount of the widow(er)s own employee annuity

If a widow or dependent widower is also a railroad employee annuitant and either the widow(er) or the deceased employee had 120 months of railroad service before 1975 the tier I reduction may be partially restored in the survivor tier II amount

If either the deceased employee or the survivor annuitant had some railroad service before 1975 but less than 10 years of service the widow(er)s own employshyee annuity and the tier II portion of the survivor annuity would be payable to the widow(er) The tier I portion of the survivor annuity would be payable only to the extent that it exceeds the tier I portion of the widow(er)s own employee annuity

COST-OF-LIVING INCREASES IN SURVIVOR ANNUITIES

Cost-of-living increases effective December 1 and included in the January payshyment are made on the basis of increases in national prices or in some circumstancshyes average national wages and calculated the same way as cost-of-living increases in employee and spouse annuities

However in the case of widow(er)srsquo annuities computed on the basis of the inishytial minimum amount provided under 2001 legislation the monthly payment will not increase until the amount payable under previous law plus subsequent cost-ofshyliving increases is higher than the initial minimum amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 51

A survivor annuity is not payable for any month the survivor works for an employer covered under the Railshyroad Retirement Act regardless of the survivorrsquos age

Survivors who are receiving social security benefits have their railroad retirement annuity and social secushyrity benefit combined for earnings limitations purposes Prior to the calshyendar year in which full retirement age is attained there is a deduction of $1 in benefits for every $2 earned over an exempt amount ($17040 in 2018) The deduction is $1 for every $3 earned over an exempt amount ($45360 in 2018) for the months in the calendar year in which the indishyvidual attains full retirement age up

to the month of attainment Work deductions stop effective with the month full retirement age is attained In the first year in which a survivor is both entitled to an annuity and has a nonshywork month a full annuity can be paid for those months in which the survivor had low earnings or did not have substantial selfshyemployshyment no matter what total earnings for the year were

These earnings restrictions do not apply to disabled widow(er)s unshyder age 60 or to disabled children However any work or earnings by a disability annuitant must be reportshyed and are reviewed to determine whether they indicate recovery from the disability

WORK AND EARNINGS What are the limitations

As work and earnings may affect the payment of an annuity they must be reported promptly to the RRB in orderto prevent potential overpayments

52 2018 INFORMATIONAL CONFERENCE HANDBOOK

WHEN SURVIVOR PAYMENTS STOP

All survivor payments stop upon death no annuity is payable for the month of death

A widow(er)rsquos annuity will be reduced upon remarriage and in some cases payshyment will be prevented A widow(er)rsquos surviving divorced spousersquos and remarried widow(er)rsquos annuity could also end upon entitlement to another survivor or spouse annuity under the Railroad Retirement Act which is greater than the widow(er)rsquos annuity

A surviving divorced spousersquos or remarried widow(er)rsquos annuity could stop when entitled to a social security benefit which equals or exceeds the deceased emshyployeersquos basic tier I amount and reduces the annuity amount to zero

A widow(er)rsquos remarried widow(er)s or surviving divorced spousersquos annuity which is based on a child in care will end if the child is no longer in the personrsquos care the childrsquos eligibility ceases or in most situations remarriage occurs Providshyed the child in care is not disabled this type of annuity also ends when the child reaches age 18 (for widow(er)s) or age 16 (for remarried widow(er)s and surviving divorced spouses)

A childrsquos or grandchildrsquos annuity will stop if he or she marries reaches age 18 or recovers from the disability upon which his or her annuity was based If the child is 18 and a full-time elementary or high school student the annuity stops when full-time attendance ceases at graduation or upon attainment of age 19 In most cases when a student attains age 19 during the school term benefits are extended to the 2 months following the month age 19 is attained

An annuity will stop if it was based on disability and the beneficiary recovers from the disability before age 60 A disability annuity can be reinstated if the disshyability recurs within 7 years and the widow(er) is still under age 60

A parentrsquos survivor annuity may stop upon remarriage in certain cases a remarshyried parent is entitled to a tier I benefit

Any of the above occurrences must be reported promptly to the RRB in order to prevent an overpayment

PROVISIONS OF THE RAILROAD RETIREMENT ACT 53

LUMP-SUM DEATH BENEFITS

A lump-sum death benefit is payable to certain survivors of an employee with 10 or more years of railroad service or less than 10 years if at least 5 years were after 1995 and a current connection with the railroad indusshytry if there is no survivor immedishyately eligible for a monthly annuity

A lump-sum death benefit may be payable if there is no survivor immediatelyeligible for monthly bene-fits

upon the employeersquos death

If the employee did not have 10 years of service before 1975 the lump sum is limited to $255 and is payable only to the widow(er) living in the same household as the employee at the time of the employeersquos death

If the employee had less than 10 years of service but had 5 years after 1995 he or she must have met social securityrsquos insured status requirements for the lump sum to be payable

If the employee had 10 years of service before 1975 the lump sum is payable to the living-with widow(er) If there is no such widow(er) the lump sum may be paid to the funeral home or the payer of the funeral expenses These lump sums averaged $1010 in fiscal year 2017

If a widow(er) is eligible for monthly benefits at the time of the employeersquos death but the widow(er) had excess earnings deductions which prevented annuity payments or for any other reason did not receive monthly benefits in the 12-month period beginning with the month of the employeersquos death totaling at least as much as the lump sum the difference between the lump-sum benefit and monthly benefits actually paid if any is payable in the form of a deferred lump-sum benefit

The average for all types of lump sums was $933 in fiscal year 2017

The railroad retirement system also provides under certain conditions a resid-ual lump-sum death benefit which ensures that a railroad family receives at least as much in benefits as the employee paid in railroad retirement taxes before 1975 This benefit is in effect a refund of an employeersquos pre-1975 railroad retirement taxes

54 2018 INFORMATIONAL CONFERENCE HANDBOOK

after subtraction of any benefits previously paid on the basis of the employeersquos sershyvice This benefit is seldom payable

APPLYING FOR AN ANNUITY

Applications for railroad retirement or survivor benefits are generally filed at one of the RRBrsquos field offices with a traveling RRB representative at a customer outreach program service location or by telephone and mail The RRB accepts applications up to 3 months in advance of an annuity beginning date which allows the agency to complete the processing of most new claims by a personrsquos retirement date An employee can be in compensated service while filing a disability applishycation provided that the compensated service is not active service and terminates within 90 days from the date of filing When an employee files a disability applishycation while still in compensated service it will be necessary for the employee to provide a specific ending date of the compensation Compensated service includes not only compensation with respect to active service performed by an employee for an employer but also includes pay for time lost wage continuation payments cershytain employee protection payments and any other payment for which the employee will receive additional creditable service

Persons applying for railroad retirement benefits will be required to enroll in either the Direct Deposit program which electronically transfers payments into an individualrsquos checking or savings account or the US Department of the Treasuryrsquos Direct Express program which electronically transfers Federal payments to an inshydividualrsquos Direct Express-issued Debit MasterCardreg Enrollment waivers are availshyable only under very limited conditions

RETIREMENT AND SURVIVOR INFORMATION

Retroactivity of a retirement annuity application is limited to 1 year for disability annuities and 6 months for full age annuities There is generally no retroactivity for reduced age annuities

PROVISIONS OF THE RAILROAD RETIREMENT ACT 55

Applicants for railroad retirement-survivor benefits can check with an RRB field office as to when they can expect their first payment Customer service stanshydards and progress reports are available at RRBgov and in field offices

To expedite filing applicants should contact an RRB field office to schedule a pre-retirement consultation with field staff who will review benefit requirements and answer questions Certain documents are required when filing a railroad retireshyment annuity application including

For employees and spouses

bull Proof of an employeersquos age

bull Proof of any military service

bull Proof of marriage if the spouse is eligible or will shortly become eligible for a spouse annuity A divorced spouse must furnish proof of divorce from the employee

bull Proof of the spousersquos or divorced spousersquos age

bull Proof of a childrsquos relationship and age if the spouse is applying for an annuity based on caring for the employeersquos child

bull Information about any public service pension for which the applicant qualifies

bull Banking information for Direct Deposit of benefit payments (needed at time application is filed)

A photocopy of a record is not accepted as an official document To avoid a delay in application processing any proof submitted must be an orig-inal or certified copy

56 2018 INFORMATIONAL CONFERENCE HANDBOOK

The best proof of age is a certified copy of a civil or church document recordshyed at or close to the time of birth The best proof of marriage is a certified copy of the public or church record or the original marriage certificate A divorced spouse would be expected to furnish a certified copy of the final divorce decree Proof of military service may be a certificate of discharge or any official military record that shows the dates of service

Employees are encouraged to file proofs of age and especially of any military service well in advance of retirement in order to expedite the annuity application process and avoid delays resulting from inadequate proofs

Applicants for disability annuities are required to submit supporting medical inshyformation and should have as much medical documentation and information availshyable as possible at the time of filing They are sometimes asked to take a special medical examination given by a doctor designated by the RRB

An annuity is effective as of the first full month throughout which the employee andor spouse is age 60 with 30 years of service or age 62 in the case of reduced annuities with less than 30 years of service An annuity is effective the first day of the month full retirement age is attained in the case of unreduced annuities with less than 30 years of service

Any social security benefits due the retired employee or family member which begin after 1974 are paid through the RRB Even though the RRB processes payshyment the Social Security Administration is responsible for all adjudication

For survivors

A widow(er) must furnish proof of age proof of marriage and proof of the employeersquos death A surviving divorced spouse must furnish proof of divorce from the employee If applying for a disability annuity the widow(er) must also provide supporting medical evidence A parent must furnish proof of relationship to the emshyployee and proof of support from the employee

PROVISIONS OF THE RAILROAD RETIREMENT ACT 57

If children are eligible for benefits proof of the relationship and age of each child is needed If a child is over age 18 and disabled supporting medical evidence is required Eighteen-year-old students must provide proof of full-time elementary or high school attendance A stepchild of the employee must furnish proof of depenshydency on the employee

Retroactivity of a survivor annuity application is 1 year for disabled widow(er)s and 6 months for full retirement age widow(er)s mothers (fathers) children and parents Retroactivity for widow(er)s ages 60shy61 is 6 months if it does not increase the age reduction (this does not apply to surviving divorced spouses or remarried widow(er)s) Otherwise there is generally no retroactivity for reduced age widow(er)srsquo annuities Lumpshysum death benefit applications must be filed within 2 years after the death of the employee There is no time limit on filing for a residual payment

GARNISHMENTPROPERTY SETTLEMENTS

Garnishment Certain percentages of an employee spouse or survivor annuity may be subject

to legal process (ie garnishment) to enforce an obligation for child support and or alimony payments

Property settlements Employee tier II benefits vested dual benefits and supplemental annuities are

subject to court-ordered property settlements in proceedings related to divorce anshynulment or legal separation Tier I benefits are not subject to property settlements

58 2018 INFORMATIONAL CONFERENCE HANDBOOK

REPRESENTATIVE PAYEES

Railroad retirement or health insurance benefit payments can be made to a repshyresentative payee for a beneficiary if it would best serve the interests of the beneshyficiary Payments made in this way are generally for a child or an adult incapable of using the benefits in his or her own interest The representative payee must use the benefits for the beneficiaryrsquos best interest The benefits are generally used to provide for basic needs The representative payee must report events which could affect the payment of the benefits and be able to account for the benefits

IF REQUIREMENTS FOR BENEFITS ARE NOT MET

Retirement annuities are not payable by the RRB unless the employee has 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of sershyvice at any time Service includes any creditable military service

Survivor annuities are not payable unless the employee had a current connecshytion with the railroad industry and either 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of service at any time

In either of the above circumstances if the requirements are not met the emshyployeersquos railroad retirement (tier I) credits are transferred to the Social Security Administration and treated as social security credits Benefits paid by that agency would accordingly take into account both railroad and social security covered earnshyings

The Railroad Retirement Act does not allow a former railroad employee to withdraw his or her retirement (tier II) taxes Like social security taxes railroad retirement taxes are not refundable unless retirement tax withholding has exceeded annual maximums (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 59 DURATION OF BENEFITS

For practical purposes the average duration of monthly benefits to retired emshyployees is measured by the life expectancies of the beneficiaries at the time their benefits begin which take into account their age sex and other factors A non-disabled male employee retiring today at age 60 may expect to receive his annuity for 224 years on the average while a female age annuitant retiring at age 60 has a life expectancy of 256 years

Table 6--Duration of benefits

AGE OF BENEFICIARY WHEN ANNUITY BEGINS

AVERAGE DURATION (YEARS)

Retired male employee60 65 70

Retired female employee60 65 70

Disabled annuitant1

60

Spouse1

60 65 70

Aged widow(er)1

60 65 70

224 182 143

256 211 170

177

255 212 172

232 190 154

1 For both sexes combined

60 2018 INFORMATIONAL CONFERENCE HANDBOOK

RAILROAD RETIREMENT TAXES

By law railroad retirement tier I payroll taxes are coordinated with social secushyrity taxes and increase automatically when social security taxes rise Employees and employers pay tier I taxes which are the same as social security taxes In addition both employees and employers pay tier II taxes to finance railroad retirement benshyefit payments over and above social security levels A table showing tax rates from 1937 on is at the end of the next chapter

The tier I tax on employees and employers is 765 percent in 2018 The tier II tax on employees is 490 percent while the tier II tax rate on rail employers rail labor organizations and rail employee representatives is 1310 percent in 2018 An employee representative is a labor official of a non-covered labor organization who represents employees covered under the Acts administered by the RRB

Railroad retirement taxes apply to earnings received on an annual basis The amounts of earnings subject to these taxes are determined each year on the basis of national wage levels

DUAL TAX PAYMENTS

Railroad employees who also worked for a social security-covered employer in the same year may under certain circumstances receive a tax credit equivalent to any excess social security taxes withheld

Employees who worked for two or more railroads in a year or who had tier I taxes withheld from their RRB sickness benefits in addition to their railroad earnshyings may be eligible for a tax credit of any excess tier I or tier II railroad retireshyment taxes withheld Employees who had tier I taxes withheld from their suppleshymental sickness benefits may also be eligible for a tax credit of any excess tier I tax Such tax credits may be claimed on an employeersquos Federal income tax return

(Text continues on page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 61

Table 7--2018 Regular Railroad Retirement Taxes

MAXIMUM ANNUAL TAXABLE

TAX RATE EARNINGS

TIER I Employees amp Employers 765 $128400

TIER II Employees 490 $95400 Employers 1310 $95400

Annual regular taxes on employees earning $128400

TIER I TIER II TOTAL

Employees $982260 $467460 $1449720 Employers $982260 $1249740 $2232000

The tier I tax rate is divided into 620 percent for railroad retirement and 145 percent for Medicare hospital insurance The 2018 maximum earnings base for railroad retirement is $128400 and the Medicare hospital insurance tax is applied to all earnings Consequently employee and employer contribushytions continue to be made at the 145 percent rate even after the employee has earned $128400

An additional 09 percent in hospital insurance taxes (235 percent in total) applies to an individualrsquos income exceeding $200000 or $250000 for a marshyried couple filing a joint tax return While employers will begin withholding the additional Medicare tax as soon as an individualrsquos wages exceed the $200000 threshold the final amount owed or refunded will be calculated as part of the individualrsquos Federal income tax return

US Railroad Retirement Board

Mission Statement

The Railroad Retirement Boardrsquos mission is to administer retirement survivor and unemploymentsickness insurance benefit programs for railroad workers and their families under the Railroad Retirement Act and the Railroad Unemployment Insurance Act These programs provide income protection during old age and in the event of disability death or temporary unemployment and sickness The Railroad Retirement Board also administers aspects of the Medicare program and has administrative responsibilities under the Social Security Act and the Internal Revenue Code

In carrying out its mission the Railroad Retirement Board will pay ben-efits to the right people in the right amounts in a timely manner and will take appropriate action to safeguard our customersrsquo trust funds The Railroad Retirement Board will treat every person who comes into contact with the agency with courtesy and concern and respond to all inquiries promptly ac-curately and clearly

Cover photos from left - Federal Railroad Administration social media USDOTFRA - Metropolitan Transportation Authority of the State of New York social media MTANewYorkCityTransit

RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE SYSTEMS

HANDBOOK

US RAILROAD RETIREMENT BOARD Office of the Labor Member

844 North Rush Street Chicago Illinois 60611-1275

RRBgov

Introduction Welcome to our 2018 Informational Conference Program

You are an essential part of our efforts to help railroad workers and their families under-stand the many important benefits available to them under the Railroad Retirement and Rail-road Unemployment Insurance Acts and we greatly appreciate you being here today

The RRBrsquos Informational Conference Pro-gram was started by the Office of the Labor Member back in 1957 Since then it has pro-vided a valuable platform for keeping union officers up-to-date on the benefits available under the railroad retirement system Thou-sands of railroad labor representatives have attended these conferences over the years and have achieved a much better understanding of the provisions and financing of the railroad retirement and unemployment insurance systems and of the administrative organization of the RRB In turn they have helped make our administration of these programs more effective by passing on to their fellow railroad employees the information they acquire at these confer-ences

During this conference some of our field managers will describe and discuss the benefits available under the agencyrsquos retirement-survivor unemployment-sickness and Medicare programs I encourage you to meet and get to know our representatives here today and those in the RRB offices in your local areas They are experts on these programs and will be happy to help you with any railroad retirement questions or problems you may have

Walter A Barrows

Today you will also receive various informational materials that describe the RRBrsquos programs in detail Please take the time to read this material so that you will be knowledgeable about the benefits available to railroad workers and their families The RRB counts on you to help keep your fellow union members informed of these benefit provisions so keep your Informational Kit handy as a source of reference when questions arise Please know that you have an important role in ensuring that each and every railroad employee retiree and dependent receives the benefits to which he or she is entitled and we are grateful for your invaluable assistance

Again thank you very much for your interest in the Informational Conference Program and for taking the time to meet with us here today

Walter A Barrows Labor Member

Contents

1 Development of the Railroad Retirement System 1

The Railroad Retirement Acts of 1934 and 1935 2 The Railroad Retirement Act of 1937

and Later Amendments 3 The Railroad Retirement Act of 1974 8 1981 Amendments 10 The 1983 Railroad Retirement Solvency Act 13 Legislation Enacted 1985-2000 15 The Railroad Retirement and Survivorsrsquo

Improvement Act of 2001 18 Court Decisions Legislation Enacted 2006-2015 21 Employment Payrolls and Tax Collections 22

2 Provisions of the Railroad Retirement Act 23 Creditable Service and Earnings 26 Employee and Spouse Annuities 27 Survivor Benefits 43 Retirement and Survivor Information 54 Employee and Spouse Annuity Formula Components 68 Survivor Annuity Formula Components 78

3 Financing of the Railroad Retirement System 83 Payroll Taxes 84 Financial Interchange 86 Investments 87 Borrowing from General Revenues Related to the Financial Interchange 88 Appropriations from General Revenues 88 Taxation of Railroad Retirement Benefits 91 Financial Position of the Railroad Retirement System 91 Financial Report 93 Tax Tables 96

Contents

4 Health Insurance for the Aged and Disabled 101 Legislative Background 101 Eligibility 103 Part A and Part B Enrollment 103 Explanation of Hospital Insurance Benefits (Part A) 105 Explanation of Medical Insurance Benefits (Part B) 107 Medicare Advantage Plans (Part C) 110 Medicare Prescription Drug Coverage (Part D) 111

5 Development of the RailroadUnemployment Insurance System 113

The Railroad Unemployment Insurance Act of 1938 and Later Amendments 114

The Technical and Miscellaneous Revenue Act of 1988 118 The Railroad Unemployment Insurance

Amendments Act of 1996 121 Employment and Benefits 122

6 Provisions of the Railroad UnemploymentInsurance Act 123 Benefit Provisions 123 Disqualifications 130 Free Placement Service 131 Payments 131 Getting Unemployment Benefits 132 Getting Sickness Benefits 133

7 Financing Unemployment and Sickness Insurance 141 Contributions 141 Railroad Unemployment Insurance Account 143 Financial Report 145

8 Administration of the Railroad Retirement System 147 Administration 147 Keeping Beneficiaries Informed 151 Program Integrity 152

I n d e x 155

1Development of the Railroad Retirement System

Private pension plans originated in the railroad industry in 1874 when the first for-mal industrial pension plan in North America was established By 1927 over 80 per-cent of all railroad employees in the United States worked for employers who had for-mal plans in operation but only a small proportion of employees ever received benefits under these plans The pension plans had a number of serious defects They generally paid inadequate benefits and had limited provisions for disability retirement Credits could not be transferred freely from employer to employer and the employers could terminate the plans at will With few exceptions the plans were inadequately financed and could not withstand even temporary difficulties

The Great Depression of the early 1930s led to movements for retirement plans on a national basis because few of the nationrsquos elderly were covered under any type of retirement plan Railroad employees were particularly concerned because the private

Why a separate railroad retirement system Private pension plans originated in the railroad industry

By the 1930s employment conditions had deteriorated

Many older workers in railroad industry

Railroad retirement system broadened existing programs under uniform national plan

1

2 2018 INFORMATIONAL CONFERENCE HANDBOOK

railroad pension plans could not keep up with the demands made upon them by the general deterioration of employment conditions and by the great accumulation of older workers in the industry While the social security system was in the planning stage railroad workers sought a separate railroad retirement system which would continue and broaden the existing railroad programs under a uniform national plan The proposed social security system was not scheduled to begin monthly benefit payments for several years and would not give credit for service performed prior to 1937 while conditions in the railroad industry called for immediate benefit pay-ments based on prior service

Legislation was enacted in 1934 1935 and 1937 to establish a railroad retire-ment system separate from the social security program legislated in 1935 Such legislation taking into account the particular circumstances of the rail industry was not without precedent Many laws pertaining to rail operations and safety had already been enacted since the Interstate Commerce Act of 1887 Since passage of the Railroad Retirement Acts of the 1930s numerous other railroad laws have sub-sequently been enacted

THE RAILROAD RETIREMENT ACTS OF 1934 AND 1935

The Railroad Retirement Act of 1934 set up the first retirement system for non-governmental workers in this country to be administered by the Federal Govern-ment However the Act was declared unconstitutional by a Federal district court and this decision was sustained by the Supreme Court The Railroad Retirement and Carriersrsquo Taxing Acts of 1935 were enacted to avoid the constitutional difficul-ties encountered by the 1934 Act However these Acts were also challenged in the courts and a Federal district court held that neither the employees nor their employ-ers could be compelled to pay railroad retirement taxes The court however did not prohibit the payment of benefits and the Railroad Retirement Board (RRB) began awarding annuities in July 1936 under the provisions of the 1935 Act

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 3

While an appeal was pending railroad management and labor at the request of President Roosevelt formed a joint committee to negotiate their differences The result was a memorandum of agreement which led to the Railroad Retire-ment and Carriersrsquo Taxing Acts of 1937 establishing the railroad retirement sys-tem The pensions of retired employees on the railroadsrsquo private pension rolls were transferred to the RRBrsquos rolls with pension reductions restored The benefit payments of almost 50000 pensioners were taken over by the RRB in July 1937 There followed an immediate reduction in both the number of employed and un-employed older railroad workers By the end of 1938 the number of workers age 65 and over in active railroad service was less than one-half of the number two years earlier Almost 100000 employees had retired under the system by that date 80 percent of them under the nondisability provisions

THE RAILROAD RETIREMENT ACT OF 1937 AND LATER AMENDMENTS

The 1937 Act set up a staff retirement plan which provided annuities to aged retired employees based on their creditable railroad earnings and service The amounts of retirement annuities awarded were directly related to the employeersquos earnings and length of service with a maximum of $120 a month Creditable earn-ings were limited to a maximum of $300 a month while no more than 30 years of service could be credited when service before 1937 was counted Annuities could be paid at age 65 or later regardless of length of service or at ages 60-64 (on a re-duced basis) after 30 years of service

The conditions for paying annuities based on disability were severely restricted The disability had to be total and permanent and 30 years of service were required for full annuities Employees could receive disability annuities at ages 60-64 after less than 30 years of service but on a reduced basis

The Act made little provision for dependents of deceased employees and no provision for spouse annuities A survivor could receive a lump sum equal to 4 percent of the employeersquos creditable earnings after 1936 less any annuity payments

4 2018 INFORMATIONAL CONFERENCE HANDBOOK

already made In addition a retiring employee could elect to receive a reduced an-nuity in order to provide an annuity to his surviving spouse

The system was financed by a schedule of taxes beginning with 275 percent each on employers and employees applicable to the first $300 of monthly compen-sation

Amendments to the 1937 Act Numerous amendments after 1937 increased benefits and added to what began

as a staff retirement system social insurance features similar to those provided by the social security system

The first significant sets of amendments were enacted in 1946 and 1951 By initiating coordination in certain areas with the social security system they laid the foundation for the evolution of the systemrsquos present structure Amendments enacted in 1946 added survivor benefits to the railroad retirement system which were simi-lar to those provided under social security coverage but approximately 25 percent higher

These amendments also introduced the first step of coordination with the social security system by dividing jurisdiction over individual survivor benefits between the RRB and the Social Security Administration Benefits to survivors were there-after based on combined railroad retirement and social security earnings credits

Provisions for annuities based on occupational disabilitymdasha staff retirement featuremdashwere also established by the 1946 amendments The provision for occupa-tional disability annuities recognized that employees who were not totally disabled could be prevented from earning a living because they could not perform their reg-ular railroad jobs The 1946 amendments also reduced the service requirements for total disability annuities making it possible for comparatively young disabled employees to receive benefits

In addition the amounts of disability retirement annuities were increased through the elimination of the reduction for employees with less than 30 years of service and the extension of new minimum provisions of the law to annuities based

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 5

on disability In 1954 annuities were provided for disabled children of deceased employees And in 1968 disabled widows ages 50-59 were added to those who could receive benefits

In 1951 amendments added annuities for the spouses of retired railroad em-ployees This legislation completed the addition of social insurance features to the railroad retirement system and expanded the coordination of the railroad retirement and social security systems

Provision was made for social security to assume jurisdiction of benefits for employees not having at least 10 years of railroad service and a minimum guaranty was provided to ensure that railroad retirement benefits would be no less than the benefit or additional benefit the social security system would have paid on the basis of the railroad service involved In addition a financial interchange was estab-lished between the two systems to apportion the costs of benefits and taxes related to railroad service on an equitable basis

In 1965 provision was made to coordinate the railroad retirement tax base and tax rate with those of the social security system This provision and the existing pro-visions for the financial interchange served as an operating vehicle through which the Medicare program was easily extended in 1965 to railroad employees and mem-bers of their families on the same basis as it was provided for social security bene-ficiaries The addition of a strictly staff benefit for career employees was provided in 1966 in the form of supplemental railroad retirement annuities

By 1970 amendments to the Act provided for regular annuities of more than double the amount provided under the original formula The amounts of earnings creditable and taxable were $650 a month in 1970 compared with $300 originally Tax rates had substantially increased in order to finance the new types of benefits the increases in benefit amounts and other liberalizations in the program The rate of regular railroad retirement taxes still divided equally between employees and employers in 1971 was 995 percent on each as compared with 35 percent in 1946

The annuities being paid in 1970 included a general benefit increase of 15 per-cent provided in that year following a social security benefit increase of 15 percent

6 2018 INFORMATIONAL CONFERENCE HANDBOOK

In the following two years of an inflationary spiral in the national economy social security and railroad retirement benefits were again substantially increased by 10 percent in 1971 and 20 percent in 1972 However these three increases were pro-vided for railroad retirement annuities on a temporary basis only The costs of mak-ing these three increases aggregating 518 percent permanent without adequate fi-nancing would have jeopardized the solvency of the system Congress directed that a Commission on Railroad Retirement be formed to study the railroad retirement system and its financing for the purpose of recommending to Congress changes in the system that would ensure adequate benefit levels on an actuarially sound basis

The preliminary recommendations of management and labor for revision of the railroad retirement system recorded in a Memorandum of Understanding were en-acted by the Congress in 1973 The major provisions which reflected components of an industry-wide wage settlement effected a redistribution of railroad retirement taxes and earlier retirement as follows Generally effective October 1 1973 em-ployee and employer tax rates under the Railroad Retirement Tax Act were revised so as to reduce the employee rate to the percentage rate paid by employees in social security-covered employment with the employer absorbing the difference so that total tax income to the program was maintained at the level in effect before the change Employee rates consequently were lowered from 1060 percent of credit-able earnings to 585 percent employer rates correspondingly increased from 1060 percent to 1535 percent Effective July 1 1974 all employees at least 60 years of age and having 30 years or more of creditable railroad service could retire without their annuities being subject to reduction for retirement before age 65 Under previ-ous law only female employees were granted this advantage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 7

Commission on Railroad Retirement REPORT

Major changes in the law were recommended in the Commissionrsquos 1972 report as its basic solution to the serious problems of the system Essentially these in-volved a proposed restructuring of the railroad retirement system with two separate tiers of benefits tier I being a social security-type benefit and tier II a supplemental staff benefit In addition the Commission recommended a phase-out of dual railroad retirement-social security benefits with some protection for the vested rights to such benefits already acquired by employees

Under the 1937 Act an individual engaging in covered employment under both the Railroad Retirement Act and the Social Security Act was entitled to benefits under both Acts assuming he or she met at least the minimum requirements for benefit eligibility By the early 1970s approximately 40 percent of all beneficiaries on the RRBrsquos rolls were also receiving social security benefits Because of certain duplications in their dual benefits considered a windfall element the total of their benefits from both systems averaged more than the annuities of railroad employees who worked in the rail industry exclusively and who had paid proportionally higher retirement taxes for the purpose of receiving higher benefits At the same time dual benefits were a cost to the railroad retirement system because they reduced the systemrsquos income from its financial interchange with the social security system (By the mid-1970s the costs to the railroad retirement system of dual benefits exceeded $450 million per year and would have been a major factor in bankrupting the railroad retirement system if allowed to continue The cumulative total loss to the system by 1974 had been about $4 billion)

Upon the release of the Commissionrsquos report Congress ordered that represen-tatives of employees and representatives of carriers negotiate mutual recommen-dations for a restructuring of the railroad retirement system which would put it on a sound financial basis taking into account the report and recommendations of the Commission on Railroad Retirement

8 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT ACT OF 1974

The Railroad Retirement Act of 1974 reflecting the basic principles of the Commission Report and incorporating the subsequent management-labor agree-ment was enacted on October 16 1974

Two-Tier Formulas The 1974 Act provided a first tier formula yielding amounts equivalent to social

security benefits taking into account both railroad retirement and nonrailroad so-cial security credits A second tier formu-la based on railroad service exclusively provides benefits comparable to those paid over and above social security ben-efits by other industrial pension systems The total annuity yielded by the tier for-mulas continued traditional levels of rail-road retirement benefits and reflected the three cost-of-living increases aggregating 518 percent which had been provided between 1970 and 1972 on a temporary basis

Dual Benefit Phase-Out

1974 Act Features

two-tier benefit formula

phase-out of vested dual benefits

cost-of-living increases

benefit improvements

The 1974 Act eliminated duplications in dual railroad retirement-social security benefits for new hires and individuals not vested as of December 31 1974 under both programs Dual benefits for vested employees were protected through provi-sion for payment of an amount in their annuities referred to as a vested dual benefit However such vested dual benefit amounts were not allowed to increase because of any social security or railroad credits earned after December 31 1974

For career employees vesting was defined as having 10 years of railroad ser-vice on December 31 1974 and in addition having enough quarters of coverage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 9

under the social security program to be entitled to a benefit at age 62 if no further social security credits were acquired after December 31 1974

Vesting for employees who had fully qualified for benefits under both systems but had left the industry prior to 1974 presented a difficult problem The 1974 Act favored employees who had remained in the railroad industry more than those who left railroad employment Accordingly active or long-term employees in the rail-road industry in a sense were placed in the same situation as employees who had already retired while former employees were made subject to more stringent re-quirements The resulting vesting provisions were subsequently tested in the courts and upheld by the US Supreme Court in 1980

Cost-of-Living Increases The 1972 amendments to the Social Security Act introduced provisions for cost-

of-living adjustments in social security benefits on the basis of changes in the Con-sumer Price Index Under the two-tier plan the first tier railroad retirement benefit increases automatically the same way social security benefits increase Four sepa-rate tier II cost-of-living adjustments were provided during the six-year period com-mencing January 1 1975 (A fifth increase was provided in subsequent legislation)

Benefit Improvements The 1974 Act also provided improvements in existing benefits The initial agree-

ment of labor and management had enabled employees to retire on or after July 1 1974 on unreduced annuities if they met the eligibility requirements of attaining age 60 and completing 30 years of service But an employee could not receive a supplemental annuity until age 65 nor could a spouse receive a spouse annuity until the employee reached age 65 The Act revised the eligibility requirements for these benefits so that they were coordinated directly with the employee annuity requirements Under the 1937 Act the vast majority of widows and other survivors received benefits based upon 110 percent of the comparable social security benefit and the resulting amount was generally felt to be inadequate in relation to the level of other railroad benefits The 1974 Act survivor formula increased the calculation basis to 130 percent from the former 110 percent

10 2018 INFORMATIONAL CONFERENCE HANDBOOK

Financing It was anticipated that the changes in the benefit formulas the reduction in dual

benefits higher investment earnings plus provisions for additional funds from the Federal Government to pay the phase-out costs of dual benefits together would place the railroad retirement system on a reasonably sound basis However the cost estimates made at that time did not anticipate the resurgence of substantial inflation in the latter part of the decade which led to a recurrence of financial difficulties for the railroad retirement system

With regard to financing the phase-out costs of dual benefits the joint manage-ment-labor committee initially proposed that the cost of vested dual benefit pay-ments be paid out of the social security trust funds as this element was basically a social security benefit However Congress concluded that the cost should be borne by the General Treasury It was thought that it would be unfair to impose this cost upon current and future employees who would not (except where vested rights are involved) be permitted to receive dual benefits upon retirement or upon the rail-roads since the excess benefit arose out of nonrailroad employment performed by these individuals Payment out of the General Treasury was supported by a prec-edent regarding military service and by the fact that the dual benefit problem had been brought about by prior congressional action repealing past dual benefit restric-tions over the objections of the railroads

1981 AMENDMENTS

By 1980 recurring inflation and recession combined with other factors placed financial stresses on the railroad retirement system which made it clear that further financial action was needed to maintain the system Railroad retirement amend-ments were subsequently enacted on August 13 1981 as part of an Omnibus Bud-get Reconciliation Act The amendments were generally effective October 1 1981

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 11

Taxes These amendments increased railroad retirement taxes on both rail employers

and employees While tier I taxes on employers and employees remained at the same rate as social security taxes 665 percent in 1981 the 95 percent tier II tax paid by employers was increased to 1175 percent and employees assumed a tier II tax of 2 percent The amendments also gave the RRB the authority to borrow from US Treasury general funds on the basis of forthcoming financial interchange in-come if Railroad Retirement Account funds were insufficient to pay benefits during a month

Benefit Provisions Although the two-tier benefit structure provided by the 1974 Act was left intact

changes were made in the tier II formula and there were other changes in benefit provisions The amendments revised the employee spouse and survivor formulas for annuity portions paid over and above social security levels Generally for career retirees whose annuities are awarded on or after October 1 1981 the simplified formula yields awards that automatically keep pace with average wage increas-es in the last 60 months of service The 1981 law continued tier II employee and spouse cost-of-living increases while revising survivor cost-of-living increases to correspond with those provided employees and spouses It also broadened the cur-rent connection requirement applicable to certain career employee benefits While the amended law eliminated future supplemental annuity closing dates it restricted future supplemental annuity eligibility to employees with some service prior to Oc-tober 1981 (Under prior law an employee who worked in railroad service after a specified closing date based on his or her 65th birthday would permanently forfeit entitlement to a supplemental annuity) In addition the amendments provided ben-efits for divorced spouses surviving divorced spouses and remarried widow(er)s which are like those provided under the Social Security Act

12 2018 INFORMATIONAL CONFERENCE HANDBOOK

This legislation also required prorated adjustments in individual vested dual benefit payments depending upon the amounts appropriated to the fund created for these payments and the level of vested dual benefit payments was made contingent on the annual Federal budget and appropriations process The amendments restrict-ed the further award of vested dual benefit payments to vested employees with dual coverage on their own earnings and precluded further awards of vested dual benefit payments to spouses or widow(er)s Furthermore after 1981 no further cost-of-liv-ing adjustments are made to vested dual benefit payments

Other Financing Provisions The 1981 amendments mandated in the event of certain adverse financial in-

dicators that railway management and labor and the White House make further financing recommendations to Congress And the new law required the RRB to reduce annuity levels during any fiscal year in which it appears there would be insufficient funds with which to make full benefit payments on a timely basis for every month of the year

In the first half of 1981 when the amendments were developed it was antici-pated that the financing arrangements would provide the railroad retirement system with adequate funding throughout the 1980s However the continuing recession in the national economy depressed rail traffic levels to the extent that large-scale lay-offs were underway by the first quarter of 1982 Average monthly employment in fiscal year 1982 dropped to 457000 from the 512000 average of the previous year and it subsequently declined to 388000 in the first quarter of 1983 The decline in employment limited payroll tax income accordingly In addition increased unem-ployment benefit payments resulting from the layoffs made such unprecedented de-mands on the Railroad Unemployment Insurance Account that it owed $500 million to the Railroad Retirement Account by the end of March 1983

The condition of the Railroad Retirement Account consequently deteriorated to the point that the RRB was required to prepare to reduce annuity levels on October 1 1983 by an estimated 40 percent of tier II portions in the absence of remedial financial legislation

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 13

THE 1983 RAILROAD RETIREMENT SOLVENCY ACT

The scheduled annuity reductions were averted by enactment of the Railroad Retirement Solvency Act on August 12 1983 The 1983 Act was based on nego-tiated recommendations of management and labor and also incorporated recom-mendations of Congress and the Administration The amendments were in part patterned after major social security amendments enacted earlier in the year which had already effected changes in railroad retirement taxes and benefits through coor-dinating provisions in the Railroad Retirement Act

Taxes Under the Railroad Retirement Solvency Act tier II taxes on employers in-

creased from 1175 percent to 1275 percent in January 1984 to 1375 percent in January 1985 and to 1475 percent in January 1986 Tier II taxes on employees increased from 2 percent to 275 percent in 1984 to 350 percent in 1985 and to 425 percent in 1986 And since 1985 railroad retirement taxes are applied to earnings on an annual rather than a monthly basis As a result of the 1983 so-cial security amendments tier I taxes on employers and employees increased from 670 percent to 7 percent in January 1984 to 705 percent in 1985 to 715 per-cent in 1986 to 751 percent in 1988 and to 765 percent in 1990 (The tier I tax rate has remained unchanged since 1990 however it was temporarily reduced to 565 percent on employees in 2011 and 2012)

The 1983 social security amendments subjected railroad retirement tier I annui-ty portions to Federal income taxes on the same basis as social security benefits and the Solvency Act made tier II benefits and vested dual benefit payments subject to Federal income tax on the same basis as private pensions beginning with tax year 1984 The revenues raised from income taxes on tier I and vested dual benefits are used for benefit payments Revenues raised by the tax on tier II benefits were to be used for benefit payments through fiscal year 1988 after which the revenues would remain in general US Treasury funds Subsequent legislation extended these trans-fers permanently

14 2018 INFORMATIONAL CONFERENCE HANDBOOK

Other Financing Provisions The Railroad Retirement Account was reimbursed in three installments from the

general fund of the US Treasury for shortfalls in vested dual benefit appropriations between 1975 and 1981 The railroad retirement systemrsquos authority to borrow gen-eral US Treasury funds until the RRB receives financial interchange funds from the social security system was broadened to place financial interchange monies in the Railroad Retirement Account on a current basis

Benefit Provisions The 1983 social security amendments deferred July 1983 cost-of-living increas-

es to January 1984 and required that future increases be made in January of subse-quent years

This deferral applied to railroad retirement tier I annuity amounts as well as social security benefits The Railroad Retirement Solvency Act correspondingly changed the future payment dates of tier II cost-of-living increases from July 1 to January 1 with the first increase payable on January 1 1985 It also required an offset of the dollar amount of the next five percent of tier I cost-of-living increases from tier II benefits

The Act modified early retirement provisions for 30-year employees attaining age 60 after June 1984 by applying certain reductions to the tier I portions of their annuities if they retired before age 62 The reductions did not affect tier II benefits and employees who acquired 30 years of service and attained age 60 before July 1 1984 could still retire at any time with full benefits as under prior law (The Rail-road Retirement and Survivorsrsquo Improvement Act of 2001 as described on pages 18-21 eliminated these reductions for 6030 employees retiring after 2001) The 1983 law established a five-month waiting period for railroad retirement disability annuities just as for social security disability benefits and altered the tier I compu-tation of annuities subject to reduction for certain non-covered service pensions It required the RRB to honor court orders that treat non-tier I railroad retirement ben-efits as property subject to division in proceedings related to divorce annulment or legal separation And the Act limited the retroactivity of applications for benefits to a maximum of six months to conform to the Social Security Act except for disabil-

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 15

ity benefit applications which can retroact 12 months

The Solvency Act eliminated annuity reductions made under prior law when military service was counted as railroad service and was also the basis for benefits under another Federal law It conformed railroad retirement student benefit provi-sions to social security student benefit provisions and eliminated age reductions applied to disabled widow(er)srsquo annuities for months they were under age 60 when their annuities began

LEGISLATION ENACTED 1985-2000

The Balanced Budget and Emergency Deficit Control Act of 1985 known as the GrammRudmanHollings Act enacted in December 1985 required decreas-es in vested dual benefit payments during the 1986 fiscal year and suspension of the January 1986 cost-of-living increase in the tier II portions of railroad retirement annuities GrammRudman andor related budget legislation reduced vested dual benefits and supplemental annuities periodically in subsequent years

Budget reconciliation legislation enacted in April 1986 included changes in Internal Revenue Code provisions increasing income taxes on some railroad re-tirement annuities Effective with tax year 1986 the tier I portion of a railroad retirement annuity which is treated as a social security benefit for Federal income tax purposes was limited for tax purposes to amounts actually equivalent to social security benefits This primarily affected tier I early retirement benefits payable be-tween ages 60 and 62 and some occupational disability benefits that are now treated like private pensions

The Tax Reform Act of October 1986 eliminated for annuities beginning af-ter July 1 1986 the three-year recovery rule for contributory pensions which had been applicable to railroad retirement benefits exceeding social security equivalent levels Under the tax reform law railroad retirement benefits exceeding social se-curity equivalent levels are taxable immediately upon retirement For tax reporting purposes benefit payments are prorated on the basis of estimated life expectancies to exempt an employeersquos previously-taxed pension contributions

16 2018 INFORMATIONAL CONFERENCE HANDBOOK

While the railroad retirement trust funds held a reserve of $69 billion at the end of fiscal year 1987 the continuing decline in railroad employment had caused concern over the systemrsquos financing in the next century

A Federal budget deficit reduction bill enacted in December 1987 increased tier II tax rates in January 1988 to 1610 percent on employers and 490 percent on employees and extended for one year until October 1 1989 the time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits

1988 Amendments The Railroad Unemployment Insurance and Retirement Improvement Act

was included in the Technical and Miscellaneous Revenue Act of 1988 enacted November 10 1988 The railroad retirement amendments in the Act eliminated the provision suspending annuities of retired employees and spouses who work for their last pre-retirement nonrailroad employers but provided for tier II earnings deduc-tions in such cases The Act also increased the amount disabled railroad retirement annuitants could earn without reducing their benefits from $200 per month to $400 per month exclusive of work-related expenses

In addition it provided railroad retirement military service credits under cer-tain conditions for railroad workers who served in the Armed Forces between June 15 1948 and December 15 1950 but had not been allowed service credit be-cause there was not a national state of emergency in force during this period before the Korean War

The Act also provided a lump sum equal to railroad retirement tier II payroll taxes deducted from separation or severance payments made after 1984 to be paid upon retirement to employees meeting minimum service requirements if the sepa-ration or severance payments did not yield additional railroad retirement service or earnings credits

Social security amendments included in this legislation modified the non-cov-ered service pension reductions applied to the social security and tier I railroad re-tirement benefits of employees awarded certain Federal State or local government pensions in recent years

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 17

Omnibus budget reconciliation legislation enacted in 1989 included a num-ber of railroad retirement and social security provisions affecting payroll taxes and benefits in 1990 and subsequent years The budget law increased the amount of earnings subject to social security and railroad retirement payroll taxes and spec-ified that 401(k) contributions and some employer-paid life insurance premiums are subject to railroad retirement payroll taxes conforming railroad retirement with social security

The 1989 budget law also revised sequestration of railroad retirement supple-mental annuities under the GrammRudman Act in fiscal year 1990 Subsequent 1990 omnibus budget legislation permanently exempted supplemental annuities from reductions under the GrammRudman Act The 1990 budget law also increased the maximum compensation subject to Medicare hospital insurance payroll tax and mandated an expedited payroll tax deposit schedule for large employers covered by social security or railroad retirement Budget legislation enacted in 1993 made all earnings subject to the Medicare payroll tax and for those in high tax brackets made a larger amount of social security and railroad retirement tier I benefits sub-ject to Federal income tax

The time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits was extended one year in 1989 and 1990 budget legislation further extended the date until October 1 1992 In 1994 legislation extended the transfers retroactive to October 1992 on a permanent basis which improved the financing of the railroad retirement system

Legislation enacted in April 2000 eased the earnings restrictions affecting so-cial security beneficiaries working after full retirement age The legislation also applied to railroad retirement annuitants but it did not change the railroad retire-ment work restrictions applying to last pre-retirement employment which are not included in the Social Security Act

18 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT AND SURVIVORSrsquo IMPROVEMENT ACT OF 2001

The Railroad Retirement and Survivorsrsquo Improvement Act of 2001 signed into law December 21 2001 liberalized early retirement benefits for 30-year employees and their spouses eliminated a cap on monthly retirement and disability benefits lowered the minimum service require-ment from 10 years (120 months) to 5 2001 Act years (60 months) of service if performed Benefit Changesafter 1995 and provided increased bene-

6030 retirementfits for some widow(er)s Financing sec- maximum provision eliminated tions in the law provided for the invest-

ment of railroad retirement funds in non- basic service requirement lowered

governmental assets adjustments in the widow(er)srsquo benefits

payroll tax rates paid by employers and employees and the repeal of a supplemental annuity work-hour tax The law was based on joint recommendations to Congress negotiated by a coalition of rail labor organizations and rail freight carriers

6030 Retirement The law amended the Railroad Retirement Act by eliminating the early retire-

ment reduction applied to the annuities of 30-year employees retiring between the ages of 60 and 62 if their annuities begin January 1 2002 or later The spouses of such employees are also eligible for full annuities at age 60 Full 6030 benefits had not been payable since 1983 legislation reduced such early retirement benefits

Maximum Provision The law eliminated effective January 1 2002 a maximum on the amount of

combined monthly employee and spouse benefit payments which had been intend-ed to prevent benefits from exceeding an amount based on an employeersquos earnings immediately prior to retirement This maximum provision had the unintended ef-fect of reducing benefits for former employees with no earnings or low earnings in the 10-year period prior to retirement and for long-service employees with mod-erate earnings

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 19

Basic Service Requirement The legislation lowered the minimum eligibility requirement for regular rail-

road retirement annuities from 10 years (120 months) of creditable railroad service to 5 years (60 months) of creditable railroad service for those with 5 years of ser-vice rendered after 1995 This provision was effective January 1 2002 and was not retroactive

Widow(er)srsquo Benefits The legislation established an initial minimum amount based on the two-tier

annuity amount that would have been payable to the railroad employee at the time the widow(er)rsquos annuity is awarded minus any applicable reductions Widow(er)rsquos annuities computed on the basis of the initial minimum amount will not increase until the amount payable under previous law plus cost-of-living increases is higher than the initial minimum amount

This provision was effective February 1 2002 and was not retroactive It ap-plied to widow(er)s on the rolls before the effective date only if the annuity the wid-ow(er) was receiving on the effective date was less than she or he would have re-ceived had the legislation been in effect on the date the widow(er)rsquos annuity began

Investment Changes The legislation provided for the transfer of railroad retirement funds from the

Railroad Retirement Accounts to the National Railroad Retirement Investment Trust whose Board of seven trustees is empowered to invest Trust assets in nongovern-mental assets such as equities and debt as well as in governmental securities The sole purpose of the Trust is to manage and invest railroad retirement assets

The Trust is a tax-exempt entity inde-pendent from the Federal Government Its Board of Trustees is comprised of the fol-

2001 Act Financing Changes

investments

payroll tax rates

supplemental annuity funding

20 2018 INFORMATIONAL CONFERENCE HANDBOOK

lowing three members selected by rail labor to represent the interests of labor three members selected by rail management to represent management interests and one independent member selected by a majority of the other six members The Trustees are subject to fiduciary standards similar to those required by the Employee Retire-ment Income Security Act The Trust must submit an annual report to Congress on its operations

Effect on Payroll Tax Rates The legislation reduced tier II tax rates on rail employers including rail labor

unions in calendar years 2002 and 2003 and beginning with 2004 provides auto-matic adjustments in the tier II tax rates for both employers and employees It also repealed the supplemental annuity work-hour tax rate paid by employers beginning with calendar year 2002

The tier II tax rate on rail employers and rail labor organizations was reduced from 1610 percent to 1560 percent in 2002 and to 1420 percent in 2003 The tier II tax rate for rail employee representatives was 1475 percent in calendar year 2002 and 1420 percent in 2003

While there was no change in the tier II tax rate of 490 percent on employees in the years 2002 and 2003 starting with calendar year 2004 tier II taxes on both employers and employees have been based on the ratio of certain asset balances to the sum of benefits and administrative expenses (the average account benefits ratio) Depending on the average account benefits ratio tier II taxes for employers range between 820 percent and 2210 percent while the tier II tax rate for employ-ees ranges between 0 percent and 490 percent In 2005 as a result of this provision the tier II tax rate on employees decreased to 440 percent from 490 percent The rate on employers and rail employee representatives decreased to 1260 percent from 1310 percent The 2006 rates were the same as in 2005 In 2007 the tier II tax rate on employees decreased from 440 percent to 390 percent and on employers it decreased from 1260 percent to 1210 percent Those rates remained the same through 2012 In 2013 the tier II tax rate on employees increased from 390 percent to 440 percent The rate on employers increased from 1210 percent to 1260 per-cent Those rates did not change in 2014 In 2015 the tier II tax rate on employees increased from 440 percent to 490 percent The rate on employers increased from

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 21

1260 percent to 1310 percent Those rates remain unchanged through 2018

Supplemental Annuity Funding In addition to repealing the supplemental annuity work-hour tax the legislation

eliminated the separate Supplemental Annuity Account Supplemental annuities are funded through the National Railroad Retirement Investment Trust

COURT DECISIONS LEGISLATION ENACTED 2006-2015

The Pension Protection Act of 2006 was signed into law August 17 2006 The Act effective August 17 2007 provided divorced spouses a railroad retirement an-nuity independent of the employeersquos actual entitlement and extended court-ordered partition payments to surviving former spouses Legislation enacted January 12 2007 increased the amount employees receiving railroad retirement disability an-nuities can earn without losing any benefits Legislation modifying partition pay-ments was signed into law on December 23 2008

The Tax Relief Unemployment Insurance Reauthorization and Job Cre-ation Act of 2010 was signed into law December 17 2010 Among its provisions the Act temporarily lowered the social security payroll tax rate on employees and the corresponding tier I payroll tax rate on railroad employees by 2 percentage points for calendar year 2011 The Temporary Payroll Tax Cut Continuation Act of 2011 extending the temporary payroll tax reduction through February 2012 was signed into law December 23 2011 The Middle Class Tax Relief and Job Creation Act of 2012 signed into law February 22 2012 extended the reduction through 2012

On June 26 2013 the Supreme Court found unconstitutional Section 3 of the Defense of Marriage Act which had prevented the Federal Government from recognizing marriages of same-sex couples As a result the RRB began accepting applications for benefits from those eligible spouses in same-sex marriages who were validly licensed under State law On June 26 2015 the Supreme Court further found that the Constitution required all States to license same-sex marriages and to recognize lawfully licensed same-sex marriages performed in other States

22 2018 INFORMATIONAL CONFERENCE HANDBOOK

EMPLOYMENT PAYROLLS AND TAX COLLECTIONS

Railroad employment has varied considerably over the years The total number of employees with some service in a year has ranged from a high of 3 million in the war year 1945 to a low of 247000 in calendar year 2010 In 2016 total employment was 253000 the first decrease since 2010 The average number employed has var-ied between a high of 17 million in the war years 1944-45 to a low of approximate-ly 221000 in 2010 Average employment in 2016 fell 16000 from the previous year to 231000

In 2017 total railroad payroll was an estimated $199 billion while the taxable payrolls (on the $127200 tier I and the $94500 tier II annual bases) were an esti-mated $186 billion and $172 billion respectively Tier I payroll includes miscella-neous compensation such as sick pay The employee tax rates for 2017 were 765 percent for tier I and 49 percent for tier II Employer rates were 765 percent and 131 percent respectively The tier I rate is divided into 62 percent for retirement disability and 145 percent for Medicare hospital insurance While the 62 percent rate applied to the $127200 annual base all of an employeersquos compensation was subject to the 145 percent Medicare tax Employees pay an additional 09 percent in Medicare hospital insurance taxes on earnings above $200000 (for those who file an individual return) or $250000 (for those who file a joint return) Retirement tax collections in 2017 were approximately $60 billion

benefits awarded since inception of the railroad retirement program

through fiscal year 2017

bull 2061000 to RETIRED EMPLOYEES bull 1233000 to SPOUSES bull 2534000 to SURVIVORS

at the end of fiscal year 2017 517000 BENEFICIARIES were being paid $125 billion a year in benefits

SCOPE OF RRB OPERATIONS

2Provisions of the Railroad Retirement Act

Service performed for a covered employer or as an employee representative is creditable toward all types of benefits under the Railroad Retirement Act Covered employers include interstate railroads and their affiliates engaged in railroad-conshynected operations as well as employer associations and national railroad labor orshyganizations and their subordinate units In some cases military service may be counted as railroad service

Service for an employer is creditable if it is compensated and the employee is subject to the continuing supervision of the employer Benefits are based on earnings credits and months of service Earnings are creditable up to certain annual maximums on the amount of compensation subject to railroad retirement taxes as shown in the table at the end of the next chapter Credit for a month of railroad service is given for every month in which an employee had some compensated service for an emshyployer covered by the Railroad Retirement Act even if only one dayrsquos service is performed in the month (However local lodge compensation earned after 1974 is disregarded for any calendar month in which it is less than $25) Special rules may apply for crediting of service months resulting from a settlement for an on-the-job injury

Benefits are based on earnings credits and months of service

23

24 2018 INFORMATIONAL CONFERENCE HANDBOOK

The basic requirement for railroad retirement annuities is at least 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if such service was performed after 1995 Service months need not be conshysecutive

Additional service months may be deemed in some cases where an employee does not actually work in every month of the year For additional service months to be deemed the employeersquos compensation for the year up to the tier II maximum must exceed an amount equal to 112 of the tier II maximum multiplied by the numshyber of service months actually worked

The excess amount is then divided by 112 of the tier II maximum the result rounded up to a whole number equals the maximum number of months that may be deemed as service months for that year The employee must be in an employment relation (on an approved leave of absence) with a covered railroad employer or be an employee representative during a deemed service month An employee may never be credited with more than 12 service months in any calendar year

Except for benefits paid for on-the-job injuries sickness benefits are subject to tier I railroad retirement taxes if paid within 6 months after the month in which the employee last worked They are credited as compensation for tier I benefits but are not credited as service months

Basic Service Requirement for Railroad Retirement Annuities

120 months of creditable railroad service

or

60 months if such service was performed after 1995

PROVISIONS OF THE RAILROAD RETIREMENT ACT 25 CREDITABLE MILITARY SERVICE

Military service may be credited towards retirement benefits under certain conditions To be creditable as compensation under the Railroad Retirement Act service in the US Armed Forces must be preceded by railroad service in the same or preceding calendar year With the excepshytions noted the employee must also have entered active military service when the United States was at war or in a state of national emergency or have served in the Armed Forces involuntarily

If military service began during a war or national emergency period any active duty service the employee was required to continue in beyond the end of the war or national emergency is creditable except that volshyuntary service extending beyond September 14 1978 is not creditable

Railroad workers who voluntarily served in the Armed Forces beshytween June 15 1948 and December 15 1950 when there was no deshyclared national state of emergency in force can be given railroad retireshyment credit for their military service if they performed railroad service in the year they entered or the year before they entered military service and if they returned to rail service in the year their military service ended or in the following year and had no intervening nonrailroad employment

war and national emergency periods

August 2 1990 to date as yet undetermined December 16 1950 to September 14 1978 September 8 1939 to June 14 1948

26 2018 INFORMATIONAL CONFERENCE HANDBOOK

SERVICE AND EARNINGS RECORDS

The RRB maintains a record of all covered railroad service and creditable earnshyings after 1936 The information is recorded under the employeersquos social security account number used by the employer to report service and compensation to the RRB

Each year employees in the industry receive a Certificate of Service Months and Compensation (Form BA-6) from the RRB This statement is important beshycause it provides both a current and cumulative record of an employeersquos railroad service and compensation It inshycludes deemed service months

Each year employees in the industry separation allowances and sevshyreceive a Certificate of Service Months erance payments as well as mis- and Compensation (Form BA-6) fromcellaneous compensation such the RRB which provides both a current

as taxable sickness payments and cumulative record of an employeersquos It also includes the cumulative railroad service and compensationamounts of railroad retirement payroll taxes paid by the employshyee over and above social security equivalent payroll taxes and reflects creditable military service if the service has previously been reported to the RRB Employees are encouraged to carefully review Form BA-6 for accuracy upon receipt

Railroad employees who have already established a Benefit Online Services account at RRBgov can view their individual railroad retirement records of service months and compensation through a feature called View Service amp Compensation History Though this alternative record does not replace Form BA-6 it does make similar information available online This information is only available to employshyees with RRB online accounts

If an employee disagrees with the information shown on Form BA-6 he or she should notify the RRB as early as possible The law limits the period during which

PROVISIONS OF THE RAILROAD RETIREMENT ACT 27 corrections can be made to 4 years When reporting an inaccuracy on Form BA-6 all correspondence must include the employeersquos social security number Employees can mail this information to any RRB field office or to RRB headquarters at

Protest Unit - CESC US Railroad Retirement Board

844 North Rush Street Chicago IL 60611-1275

AGE AND SERVICE DISABILITY AND SUPPLEMENTAL ANNUITIES

The basic requirement for a regular employee annuity is 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if performed after 1995 Benefits then become payable after the employee meets certain other requirements which depend in turn on the type of annuity payable

An AGE AND SERVICE ANNUITY can be paid to

Employees with 30 or more years of creditable service They are eligible for regular annuities based on age and service the first full month they are age 60 Early retirement reductions are applied if the employee first became eligible for a 6030 annuity July 1 1984 or later and retired at ages 60 or 61 before 2002

Employees with 10-29 years of creditable service or 5-9 years if at least 5 years were after 1995 They are eligible for regular annuities based on age and service the first full month they are age 62 Early retirement annuity reductions are applied to annuities awarded before the employeersquos full retirement age as explained on the next page

EMPLOYEE AND SPOUSE ANNUITIES

28 2018 INFORMATIONAL CONFERENCE HANDBOOK

Full retirement age means the age at which an employee can receive full benefits with no reduction for early retirement This ranges from age 65 to age 67 depending upon the year of birth Reduced annuities are still payable at age 62 to those with less than 30 years of service but the maximum reduction is gradually rising to 30 percent from 20 percent by the year 2022 as a result of social security legislation enacted in 1983 Part of the annuity (tier II) is not reduced beyond 20 percent if the employee had any creditable railroad service before August 12 1983 Railroad retirement tiers are explained on pages 33 and 35

The annuities of employees reshytiring after the first full month they are age 60 (for those with 30 years of service) can begin with the first day they are eligible with up to 6 monthsrsquo retroactivity The annuities of employees retiring at or after age 62 with an age reduction (for those with less than 30 years of service) can begin with the first day of the month in which the application is filed

An annuity based on age cannot be paid until the employee stops railroad emshyployment files an application and gives up any rights to return to work for a railshyroad employer

IF EMPLOYEE WAS BORN

FULL RETIREMENT AGE IS

1937 or earlier 65

1938 65 and 2 months

1939 65 and 4 months

1940 65 and 6 months

1941 65 and 8 months

1942 65 and 10 months

1943 through 1954 66 1955 66 and 2 months

1956 66 and 4 months

1957 66 and 6 months

1958 66 and 8 months

1959 66 and 10 months

1960 or later 67

A person attains a given age the day before his or her birthday Consequently someone born on January 1 is considered to have attained his or her given age on December 31 of the previous year

Table 1--Determining Full Retirement Age

PROVISIONS OF THE RAILROAD RETIREMENT ACT 29

A DISABILITY ANNUITY can be paid for

Total disability at any age if an employee is disabled for all regular work and has at least 10 years (120 months) of creditable railroad service Employees with 5-9 years of creditable railroad service if at least 5 years were after 1995 may qualify for tier I only (as defined on page 33) before retirement age on the basis of total disability if they also meet certain social security earnings requirements An age reshyduced tier II amount would be payable at age 62

TOTAL DISABILITY

means a physical or mental disability that prevents any regular employment

Occupational disability at age 60OCCUPATIONAL DISABILITY if an employee has at least 10 years

(120 months) of railroad service or at means an employee is disabled for his or any age if the employee has at leasther regular railroad occupation (generally

the job he or she worked the longest in the 20 years (240 months) of service last 5 years) and the condition is expected when the employee is disabled for his to last at least 12 months or longer or her regular railroad occupation

A current connection with the rail-road industry is also required for an annuity based on occupational rather than total disability

A 5-month waiting period beginning with the month after the month of the onset of disability is required before any disability annuity payments can begin

An employee can be in compensated service while filing a disability annuity application as long as the compensated service is not active service and terminates within 90 days from the date of filing However in order for a supplemental annuity to be paid by the RRB or for an eligible spouse to begin receiving annuity payshyments a disabled annuitant under full retirement age must relinquish employment rights

A SUPPLEMENTAL ANNUITY can be paid at

Age 60 if the employee has at least 30 years of creditable railroad service

Age 65 if the employee has 25-29 years of railroad service

30 2018 INFORMATIONAL CONFERENCE HANDBOOK

In addition to the service requirements a current connection with the railroad industry is required for all supplemental annuities An employee must also be reshyceiving a railroad retirement age and service or disability annuity before a suppleshymental annuity can be paid Eligibility is further limited to employees who had at least one month of creditable rail service before October 1981

CURRENT CONNECTION

An employee who worked for a railroad in at least 12 months in the Once a current connection 30 months immediately preceding is established at the time the

railroad retirement annuity be-the month his or her railroad retire- gins an employee never loses ment annuity begins will meet the it no matter what kind of work current connection requirement for is performed thereafter a supplemental annuity occupationshyal disability annuity or the survivor benefits described later in this chapter (If the employee died before retirement railroad service in at least 12 months in the 30 months before the month of death will meet the current connection requirement for the purpose of paying survivor benefits)

If an employee does not qualify for a current connection on this basis but has 12 months of service in an earlier 30-month period he or she may still meet the current connection requirement This alternative generally applies if the employee did not have any regular employment outside the railroad industry after the end of the last 30-month period which included 12 months of railroad service and before the month the annuity begins or the month of death Full or part-time work for a nonrailroad employer in the interval between the end of the last 30-month period inshycluding 12 months of railroad service and the month an employeersquos annuity begins or the month of death if earlier can break a current connection

Self-employment in an unincorporated business will not break a current conshynection however self-employment can break a current connection if the business is incorporated

Working for certain US Government agencies--Department of Transportashytion National Transportation Safety Board Surface Transportation Board Transshy

PROVISIONS OF THE RAILROAD RETIREMENT ACT 31

portation Security Administration National Mediation Board Railroad Retirement Board--will not break a current connection State employment with the Alaska Railshyroad as long as that railroad remains an entity of the State of Alaska will not break a current connection Also railroad service in Canada for a Canadian railroad will neither break nor preserve a current connection

A current connection can also be maintained for purposes of supplemental and survivor annuities but not for an occupational disability annuity if the employee completed 25 years of railroad service was involuntarily terminated without fault from his or her last job in the railroad industry and did not thereafter decline an offer of employment in the same class or craft in the railroad industry regardless of the distance to the new position A termination of railroad service is considered volshyuntary unless there was no choice available to the individual to remain in service Generally where an employee has no option to remain in the service of his or her railroad employer the termination of the employment is considered involuntary reshygardless of whether the employee does or does not receive a separation allowance However each case is decided by the RRB on an individual basis This exception to the normal current connection requirements became effective October 1 1981 but only for employees still living on that date who left the rail industry on or after October 1 1975 or who were on leave of absence on furlough or absent due to injury on October 1 1975

SPOUSE ANNUITIES

The age requirements for a spouse annuity depend on the employeersquos bull age and date of retirement bull years of railroad service

Retired employee age 60 with 30 years of service

If a retired employee with 30 years of service is age 60 the employeersquos spouse is also eligible for an annuity the first full month the spouse is age 60 Certain early retirement reductions are applied if

the employee first became eligible for a 6030 annuity July 1 1984 or later and reshytired at ages 60 or 61 before 2002 If the employee was awarded a disability annuity has attained age 60 and has 30 years of service the spouse can receive an unreduced

32 2018 INFORMATIONAL CONFERENCE HANDBOOK

annuity the first full month she or he is age 60 regardless of whether the employee annuity began before or after 2002 as long as the spousersquos annuity beginning date is after 2001

If a retired employee with less than 30 years of service is age 62 the employeersquos spouse is also elishygible for an annuity the first full month the spouse is age 62 Early retirement reductions are applied to the spouse annuity if the spouse retires prior to her or his full retirement age Full reshytirement age for a spouse is gradually rising to age 67 just as for an employee depending on the year of birth Reduced benefits are still payable at age 62 but the maximum reduction will be 35 percent rather than 25 percent by the year 2022 The tier II portion of a spouse annuity (as defined on page 35) is not reduced beyond 25 percent if the employee had any creditable railroad service before August 12 1983

A spouse of an employee receiving an age and service annuity (or a spouse of a disability anshynuitant who is otherwise eligible for an age and service annuity) is eligible for a spouse annuity at any age if he or she is caring for the employshy

eersquos unmarried child under age 18 The spouse is also eligible if caring for the emshyployees disabled child of any age who became disabled before age 22

The employee must have been married to the spouse for at least 1 year unless the spouse is the natural parent of their child or the spouse was eligible or potentialshyly eligible for a railroad retirement widow(er)rsquos parentrsquos or disabled childrsquos annushyity in the month before marrying the employee or the spouse was previously marshyried to the employee and received a spouse annuity A spouse of an employee is not eligible for railroad retirement benefits based solely on the spouses own disability

An annuity may also be payable to the dishyvorced wife or husband of a retired employee if their marriage lasted for a period of at least 10 years immediately before the date the divorce beshycame final both have attained age 62 for a full month and the divorced spouse is not currently married The amount of a divorced spousersquos annuity is in effect equal to what social security would pay in the same situation and therefore less

Retired employee age 62 with less than 30 years of service

Spouse of an age and service employee caring for the em-ployeersquos unmarried child

Divorced spouse if marriage lasted for at least 10 years

PROVISIONS OF THE RAILROAD RETIREMENT ACT 33

than the amount of the spouse annuity otherwise payable (tier I only) A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for a period of not less than 2 years the employee and forshymer spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings Also a court-ordered partition payment may be paid even if the employee is not entitled to an annuity provided that the employee has 10 years of railroad service or 5 years after 1995 and both the employee and former spouse are 62

ANNUITY ESTIMATES

Railroad employees with RRB online accounts can get estimates of future anshynuities for themselves and their spouses via the Benefit Online Services section of RRBgov Instructions for establishing an online account are available by clicking on the link for requesting a Password Request Code (PRC) in that same section The estimates are based on the service and earnings records maintained by the RRB and show the earliest date the employee can receive a full annuity and if applicable the earliest date he or she can receive a reduced annuity Employees can also contact any RRB field office to request annuity estimates with approximate figures Estishymates can only be furnished for employees with at least 10 years of railroad service or 5 years of service after 1995 it is not possible to provide a precise amount if the employee is not currently eligible

TWO-TIER ANNUITIES AND DUAL BENEFITS

Regular railroad retirement annuities are calculated under a two-tier formula The annuity formula components for employees and spouses are described later in this chapter

The FIRST TIER is based on railroad retirement credits and any social security credits an employee has acquired The amount of the first tier is calculated using social security formulas but with railroad retirement age and service requirements

(Text continues on page 35)

34 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 2--Fiscal year 2017 annuity awards to 30-year employees retiring before full retirement age

AVERAGE AWARD

AVERAGE YEARS OF SERVICE

Employee $4079 372

Employee and spouse 5701 374

Note--For employees with at least 25 years of service and a current conshynection a supplemental annuity may be payable The supplemental annuity amount is $23 plus $4 for each year of service over 25 years up to a maxshyimum of $43 for employees with 30 or more years of service Figures in the tables on this page include supplemental annuity amounts

Table 3--Fiscal year 2017 annuity awards based on service averaging less than 30 years

AVERAGE AVERAGE YEARS AWARD OF SERVICE

Employee full retirement age or over $2557 213

Employee full retirement age or over and spouse 3631 234

Employee under full retirement age with less than 30 years of service 1845 159

Employee under full retirement age with less than 30 years of service and spouse 2549 162

Employee retiring because of disability 2726 209

PROVISIONS OF THE RAILROAD RETIREMENT ACT 35

The SECOND TIER is based on railroad retirement credits only and may be compared to the retirement benefits paid over and above social security benefits to workers in other industries

An additional amount may also be payable as part of the regular annuity if an employee qualified for both railroad retirement and social security benefits before 1975 and met certain vesting requirements

Employees with Railroad Retirement and Social Security Benefits If a retired or disabled railroad retirement annuitant is also awarded social secushy

rity benefits the Social Security Administration determines the amount of the social security benefit due The RRB then issues a combined monthly benefit payment after the railroad retirement annuity (tier I only) has been reduced by the amount of the social security benefit

The tier I portion of an employee annuity is based on his or her combined railshyroad retirement and social security credits figured under social security formulas and approximates what social security would pay if railroad work were covered by that system It is reduced by the amount of any actual social security benefit paid on the basis of the employeersquos nonrailroad employment in order to prevent a duplicashytion of benefits based on social security-covered earnings The tier I amount is also reduced in the event a social security benefit is payable to the employee on the basis of another personrsquos earnings This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time An annuitant is required to advise the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase (other than for a cost-of-living increase)

If an employee qualified for dual benefits before 1975 and met certain vesting requirements he or she can receive an additional annuity amount which offsets in part the dual benefit reduction This additional amount which reflects the dual benefits payable prior to 1975 is called the vested dual benefit payment The vested dual benefit cannot be paid prior to the date the employee could begin to receive a social security benefit if he or she were to file for such a benefit

36 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employees who worked for a railroad in 1974 and retired after 1974 are conshysidered vested if on December 31 1974 they had both at least 10 years of railroad service and sufficient quarters of coverage to qualify for a social security retireshyment benefit at age 62 Employees qualified on this basis are eligible for vested dual benefit amounts computed on their railroad and social security credits through December 31 1974

Employees who did not work for a railroad in 1974 but had 25 Limitations on or more years of railroad service Vested Dual Benefitsbefore 1975 or employees with 10 years of railroad service before Vested dual benefit payments are 1975 who had either a current conshy funded by annual appropriations from

general US Treasury revenues These nection with the railroad industry appropriations account for less than one on December 31 1974 or at the percent of total financing sources for the

time their annuities began are also railroad retirement system considered vested under the same Payment of vested dual benefits is deshyconditions as persons who were pendent on the time and amount of such

appropriations If the appropriation in a railroad employees in 1974 fiscal year is for less than the estimated

Other employees who comshy total vested dual benefit payments indishyvidual payments must be reduced pleted 10 or more years of railroad

service before 1975 but left the inshydustry before 1974 are considered vested only if they had sufficient social security quarters of coverage to qualify for a social security retirement benefit as of the end of the year before 1974 in which they left the railroad industry Their vested dual benefit amount is based only on credits acquired through their last year of pre-1975 railroad service instead of through December 31 1974

Employees who do not qualify for a vested dual benefit may be eligible for a refund of any excess social security taxes they paid (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 37

Employees with Public Non-Profit or Foreign Pensions For employees first eligible for a railroad retirement annuity and a Federal

State or local government pension after 1985 there may be a reduction in the tier I amount for receipt of a public pension based in part or in whole on employment not covered by social security or railroad retirement after 1956 This may also apshyply to certain other payments not covered by railroad retirement or social security such as payments from a nonprofit organization a foreign government or a foreign employer This does not include military service pensions payments by the Departshyment of Veterans Affairs or certain benefits payable by a foreign government as a result of a totalization agreement between that government and the United States

Workersrsquo Compensation If an employee is receiving a disability annuity the tier I portion may under

certain circumstances be reduced for receipt of workersrsquo compensation or public disability benefits

If an annuitant becomes entitled to any pensions or benefits as described above the RRB must be notified immediately

SPOUSES WITH DUAL BENEFITS

Social Security Benefits The tier I portion of a spouse annuity is reduced for any social security entitleshy

ment regardless of whether the social security benefit is based on the spousersquos own earnings the employeersquos earnings or the earnings of another person This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time

Public Pensions The tier I portion of a spouse annuity may also be reduced for receipt of any

Federal State or local government pension separately payable to the spouse based

38 2018 INFORMATIONAL CONFERENCE HANDBOOK

on the spousersquos own earnings The reduction generally does not apply if the emshyployment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For spouses subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

Employee Annuity If both individuals in a marriage are railroad employees and both started railroad

employment after 1974 the amount of any spouse or divorced spouse annuity is reshyduced by the amount of the employee annuity to which the spouse is also entitled

If either one had some railroad service before 1975 the spouse tier I amount is reduced by the amount of the railroad employee tier I to which the spouse is entitled and that initial reduction is restored in the spouse tier II amount The spouse tier I amount cannot be reduced below zero

MINIMUM GUARANTY

Under a special minimum guaranty provision railroad families will not reshyceive less in monthly benefits than they would have if railroad earnings were covered by social security rather than railroad retirement laws This guaranty is intended to cover situations in which one or more members of a family would otherwise be eligible for a type of social security benefit which is not provided unshyder the Railroad Retirement Act

For example social security provides childrenrsquos benefits when an employee is totally disabled retired or deceased The Railroad Retirement Act only provides childrenrsquos benefits if the employee is deceased Therefore if a retired rail employee has children who would otherwise be eligible for a benefit under social security the employeersquos annuity would be increased to reflect what social security would pay the family unless the annuity is already more than that amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 39

COST-OF-LIVING INCREASES IN EMPLOYEE AND SPOUSE RETIREMENT BENEFITS

After retirement the tier I portions of both employee and spouse annuities are generally increased for higher living costs at the same time and by the same pershycentage as social security benefits These increases effective December 1 and inshycluded in the January payment are based on the rise in the Consumer Price Index from the third quarter of the last year a cost-of-living adjustment became effective to the corresponding period of the current year Generally if the Index increases by five percent for example the tier I portion increases by five percent Under certain circumstances the increase can be based on average national wage increases rather than price increases

If an annuitant is receiving both railroad retirement and social security benefits the increased tier I portion is reduced by the increased social security benefit

The tier II portions of retired employee and spouse annuities are normally inshycreased by 325 percent of the increase in the Consumer Price Index

Tier II cost-of-living increases are generally payable at the same time as tier I cost-of-living increases Vested dual benefit payments and supplemental annuities are not increased by these cost-of-living adjustments

WORKING AFTER RETIREMENT

Neither a regular annuity a supplemental annuity nor a spouse annuity is payshyable for any month in which a retired employee regardless of age works for an employer covered under the Railroad Retirement Act including labor organizashytions However service for less than $25 a month to a local lodge will not prevent payment of the annuity for that month Regardless of the amount of salary work by a local lodge or division secretary collecting insurance premiums is considered railroad work and therefore no annuity is payable for any month in which such activity occurs

40 2018 INFORMATIONAL CONFERENCE HANDBOOK

Retired employees and spouses who work for their last pre-retirement nonrailshyroad employer are subject to an earnings deduction Last pre-retirement nonrailroad employment is employment that continues through the annuity beginning date or ended within 6 months of the annuity beginning date Such employment will reduce tier II benefits and supplemental annuity payments which are not otherwise subject to earnings deductions by $1 for each $2 of earnings received subject to a maxishymum reduction of 50 percent These reductions continue after full retirement age Work that begins on the same day as the annuity beginning date is not last pre-reshytirement nonrailroad employment

Retired employees and spouses who have not yet attained full social security retirement age which ranges from age 65 for those born before 1938 to age 67 for those born in 1960 or later may also be subject to additional earnings deductions for any earnings in or outside the rail industry that exceed certain exempt amounts The tier I and vested dual benefits of these employee and spouse annuities are subshyject to deductions if earnings exceed the exempt amounts applicable to social secushyrity beneficiaries Prior to the calendar year in which full social security retirement age is attained the deduction is $1 in benefits for every $2 of annual earnings exshyceeding an exempt amount ($17040 in 2018)

If the employee or spouse has a tier I reduction for social security benefits the tier I benefit is not reduced for excess earnings

In the first year in which an employee subject to these earnings deductions is both entitled to an annuity and has a non-work month a full tier I and vested dual benefit can be paid for those months in which the employee had low earnings or did not have substantial self-employment no matter what total earnings for the year were A non-work month is one in which the employee neither earns over 112th of the annual exempt amount nor has substantial self-employment Non-work months can be claimed in only one calendar year which need not necessarily be the first year of entitlement

In the calendar year in which an individual attains full social security retirement age deductions of $1 are made in tier I and vested dual benefits for every $3 earned in excess of an exempt amount ($45360 in 2018) but only counting those earnings in the months prior to the month full retirement age is attained These tier I and

PROVISIONS OF THE RAILROAD RETIREMENT ACT 41

vested dual benefit deductions stop effective with the month full retirement age is attained

Earnings received for services rendered plus any net earnings from self-emshyployment are considered when assessing deductions for earnings Interest divishydends certain rental income or income from some stocks bonds or other investshyments are not generally considered earnings for this purpose

Annuitants under full retirement age who work after retirement and expect that their earnings for a year will be more than the annual exempt amount must promptshyly notify the RRB and furnish an estimate of their expected earnings in order to prevent an overpayment and penalties They should also notify the RRB if their original estimate changes significantly Annuitants should report final earnings by April 15 of the following year

Retired employees and spouses who return to work for a railroad or for their last pre-retirement nonrailroad employer must notify the RRB regardless of earnings or age

A spouse benefit is subject to reductions not only for the spousersquos earnings but also for the earnings of the employee regardless of whether the earnings are from service for the last pre-retirement nonrailroad employer or other post-retirement employment

A spouse annuity is not payable for any month in which the employeersquos annuity is not payable or for any month in which the spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse annuity is not payable for any month in which the divorced spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for at least 2 years the employee and former spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings

Disability Work Restrictions If an annuity is based on disability there

A disability annuitant must report anyearnings

42 2018 INFORMATIONAL CONFERENCE HANDBOOK

are certain work restrictions that can affect payment depending on the amount of earnings The annuity is not payable for any month in which the disabled employee annuitant works for an employer covered under the Railroad Retirement Act The annuity is not payable for any month in 2018 in which the disabled employee anshynuitant earns over $920 in any employment or net self-employment exclusive of disability-related work expenses Withheld payments will be restored if earnings for the year are less than $11500 after deduction of disability-related work expenses Failure to report such earnings could involve a significant penalty charge

These disability work restrictions cease upon a disabled employee annuitantrsquos attainment of his or her full retirement age This transition is effective no earlier than full retirement age even if the annuitant had 30 years of service Earnings deshyductions continue to apply to those working for their last pre-retirement nonrailroad employer

If a disabled employee annuitant works before his or her full retirement age this may also raise a question about the possibility of that individualrsquos recovery from disability regardless of the amount of earnings Consequently any work activity must be reported promptly to avoid overpayments which are recoverable by the RRB and may also include significant penalties

WHEN ANNUITIES STOP

Payment of any annuity stops upon the annuitantrsquos death and the annuity is not payable for any day in the month of death

A disability annuity stops after the employee recovers from the disability it can be reinstated if the disabling condition recurs

A spouse annuity stops if the employeersquos annuity terminates or the spouse anshynuity was based on caring for a child and the child is no longer under age 18 or disabled or the child is no longer in the spousersquos care However the spouse annuity may continue if she or he is qualified without the child or it can resume when the spouse attains a qualifying age

While a divorce ends eligibility for a spouse annuity a divorced spouse may

PROVISIONS OF THE RAILROAD RETIREMENT ACT 43 under conditions described previously qualify for a divorced spousersquos annuity

A divorced spousersquos annuity stops upon remarriage or upon entitlement to a social security benefit based on her or his own earnings if the unreduced social seshycurity benefit is equal to or greater than one-half of the employeersquos unreduced tier I amount A divorced spousersquos annuity may be reduced or stopped if the divorced spouse is also entitled to a railroad retirement annuity

Annuities are payable to surviving widow(er)s children and certain other deshypendents Lump-sum benefits are payable after the death of a railroad employee only if there are no qualified survivors of the employee immediately eligible for monthly annuities With the exception of a residual lump-sum death benefit elishygibility for survivor benefits depends on whether or not the employee was insured under the Railroad Retirement Act at the time of death

An employee is insured if he or she has at least 10 years (120 months) of railshyroad service or 5 years (60 months) performed after 1995 and a current connection with the railroad industry as of the month the annuity begins or the month of death whichever occurs first The current connection requirement is described earlier in this chapter

It is important to notify the Railroad Retirement Board promptly if one of the above changes occurs Failure to report can result in an overpayment which the RRB will take action to recover sometimes with interest or penalshyties Failure to report changes promptly or making a false statement can also result in a fine or imprisonment

SURVIVOR BENEFITS

survivor annuities are payable to

widow(er)s surviving divorced spouses remarried widow(er)s unmarried children parents

44 2018 INFORMATIONAL CONFERENCE HANDBOOK

If a deceased employee was not so insured jurisdiction of any survivor benefits payable is transferred to the Social Security Administration and any survivor benshyefits are paid by that agency instead of the RRB Regardless of which agency has jurisdiction the deceased employeersquos railroad retirement and social security credits will be combined for the purpose of benefit computations

WIDOWSrsquo AND WIDOWERSrsquo ANNUITIES

Widowsrsquo and widowersrsquo annuities are payable at

Age 60 age reductions are applied to annuities awarded before full retirement age The eligibility age for unreduced annuities is gradually rising from age 65 to age 67 depending on the year of birth

Ages 50-59 if the widow(er) is totally disabled and unable to work in any regushylar employment The disability must have begun within 7 years after the employeersquos death or within 7 years after the termination of an annuity based on caring for a child of the deceased employee In most cases a 5-month waiting period is required after the onset of disability before a disability annuity can begin

Any age if the widow(er) is caring for an unmarried child of the deceased employee under age 18 or a disabled child of any age who became disabled before age 22

Generally the widow(er) must have been married to the employee for at least 9 months prior to death unless she or he was the natural or adoptive parent of their child the employeersquos death was accidental or while on active duty in the US Armed Forces the widow(er) was potentially entitled to certain railroad retirement or social security benefits in the month before the month of marriage or the marshyriage was postponed due to State restrictions on the employees prior marriage and divorce due to mental incompetence or similar incapacity

Survivor annuities may also be payable to a surviving divorced spouse or re-married widow(er) Benefits are limited to the amount social security would pay and therefore are less than the amount of the survivor annuity otherwise payable

(Text continues on page 47)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 45

Table 4--Number and average amount of benefits awarded under the Railroad Retirement Act fiscal year 2017

AVERAGE TYPE OF BENEFIT NUMBER AMOUNT

MONTHLY BENEFITS

Full retirement age or over 1800 $2550

Less than full retirement age Unreduced 4900 4049 Reduced 2400 1845 Age retirements total 9100 3159

Disability retirements 1600 2723 Regular employee annuities total 10700 3095

Supplemental employee annuities1 5200 41

Unreduced spouse annuities 7300 1269

Reduced spouse annuities 2700 548

Divorced spouse annuities 700 669 Spouse and divorcedspouse annuities total 10800 1047

Aged widow(er)s 5500 2113

Disabled widow(er)s 100 1752

Widowed mothers and fathers 100 1806

Remarried widow(er)s 100 1189

Divorced widow(er)s 700 1209

Children 400 1368

Parents2 844 Survivor annuities total 6900 1948

Total3 33500

LUMP-SUM BENEFITS

Lumpshysum death payments 2500 $933

Residual payments2 1040

Total 2500

1 Averages are after courtshyordered partitions 2 Fewer than 50 3 Excludes partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Note--Detailed figures may not add to totals shown because of rounding

46 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 5--Number and average amount of monthly benefits under the Railroad Retirement Act in current payment status

on September 30 2017

TYPE OF BENEFIT NUMBER AVERAGE AMOUNT

Full retirement age or over Less than full retirement age Unreduced Reduced Age retirements total

Disability retirements1

Under full retirement age Full retirement age and over Regular employee annuities total Supplemental employee annuities2

Unreduced spouse annuities Reduced spouse annuities Divorced spouse annuities Spouse and divorcedspouse annuities total

Aged widow(er)s Disabled widow(er)s Widowed mothers and fathers

Remarried widow(er)s Divorced widow(er)s Children Parents3

Survivor annuities total Partition payments4

Total

21300

107400 61700 190300

46200 28000 264500

122100 96300 45500 5100

146900

87800 3500

600 3000 9700 8500 113200 1700

648300

$2131

3487 1621

2731

2401 2691 2669

42

1261

514

632

1008

1664

1326

1878

1071

1078

1078

907 1544

315

1 Full retirement age also known as normal retirement age is gradually increasing from age 65 to age 67 over a 22shyyear period For those born 121943shy111955 the normal retirement age is 66 Annuities to disability retirees at full retirement age and over are payable as age annuities 2 Averages are after courtshyordered partitions 3 Fewer than 50 4 Limited to partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Partition payments from employees on the rolls are included with the employees annuities Note--Detailed figures may not add to totals shown because of rounding

PROVISIONS OF THE RAILROAD RETIREMENT ACT 47

However a former spouse may be paid a court-ordered partition amount even after the employees death

A surviving divorced spouse may qualify if she or he was married to the emshyployee for a period of at least 10 years immediately before the date the divorce became final is unmarried or remarried under the conditions described in the next paragraph and is age 60 or older (50 if disabled) A surviving divorced spouse who is unmarried can qualify at any age if caring for the employeersquos child and the child is under age 16 or disabled in which case the 10-year marriage requirement does not apply

The portion of a survivor annuity equivalent to a social security benefit (tier I) may be paid to a widow(er) or surviving divorced spouse who remarries after age 60 or to a disabled widow(er) or disabled surviving divorced spouse who remarries after age 50 however remarriage prior to age 60 (or age 50 if disabled) would not prevent eligibility if such remarriage ends Such social security level benefits may also be paid to a younger widow(er) or surviving divorced spouse caring for the employeersquos child who is under age 16 or disabled if the remarriage is to a person entitled to railroad retirement or social security benefits or the remarriage ends

OTHER SURVIVOR ANNUITIES

Other survivor annuities are payable to

An unmarried child under age 18

An unmarried child age 18 in full-time attendance at an elementary or sec-ondary school or in approved homeschooling until the student attains age 19 or the end of the school term in progress when the student attains age 19 In most cases where a student attains age 19 during the school term benefits are limited to the 2 months following the month age 19 is attained These benefits will be terminated earlier if the student marries graduates or ceases full-time attendance

An unmarried disabled child over age 18 if the child became totally disabled before age 22

An unmarried dependent grandchild meeting any of the requirements deshyscribed above for a child if both the grandchildrsquos parents are deceased or disabled

48 2018 INFORMATIONAL CONFERENCE HANDBOOK

A parent at age 60 who was dependent on the employee for at least half of the parentrsquos support If the employee was also survived by a widow(er) surviving dishyvorced spouse or child who could ever qualify for an annuity the parentrsquos annuity is limited to the amount that social security would pay (tier I)

SURVIVOR ANNUITY ESTIMATES

Survivors can call the agency toll-free (1-877-772-5772) to speak with a field service representative and request an annuity estimate Active or retired employees who are concerned about the amount of benefits which would be payable to their survivors may also receive estimates from field service staff Pre-retirement counshyseling is also available by appointment at any RRB field office

The following information may be helpful in providing an idea of the amount of potential survivor benefits

The average annuity awarded to widow(er)s in fiscal year 2017 excluding reshymarried widow(er)s and surviving divorced spouses was $2103 a month On the average children received $1368 a month while total family benefits for widshyow(er)s with children averaged $4189 a month The average annuity awarded to remarried widow(er)s or surviving divorced spouses in fiscal year 2017 was $1206 a month

SURVIVOR ANNUITY TIERS

Survivor annuities like retirement annuities consist of tier I and tier II components

Based on deceased employeersquos combined railroad retirement and TIER I social security credits and generally equivalent to the amount

that would be payable under social security

Percentages of deceased employeersquos tier II amount (similar to TIER II a private pension tier II benefit is based on employees railroad

earnings and service months)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 49

Survivor annuity amounts may also be determined under certain minimum proshyvisions which guarantee that a widow(er)rsquos annuity will be at least equal to the two-tier benefit the deceased employee would have received at the time of the award of the widow(er)rsquos annuity minus certain reductions including those for age and receipt of social security benefits and no less than the spouse annuity she or he was receiving just prior to the employeersquos death

SURVIVORS WITH DUAL BENEFITS

Social Security Benefits The tier I portion is reduced by the amount of any social security benefits reshy

ceived by a survivor annuitant whether the social security benefits are based on the survivorrsquos own earnings or those of another individual This reduction follows the principles of social security law which in effect limit payment to the higher of any two or more benefits payable to an individual at one time When both railshyroad retirement annuities and social security benefits are payable they are genershyally combined into a single payment issued through the RRB A survivor annuitant must notify the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase other than for a cost-of-living increase

Public Pensions The tier I portion of a widow(er)rsquos annuity may be reduced for receipt of any

Federal State or local government pension based on the widow(er)rsquos own earnings The reduction generally does not apply if the employment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For those subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

50 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employee Annuity If a widow(er) is also entitled to a railroad retirement employee annuity and

both the widow(er) and the deceased employee started railroad employment after 1974 the survivor annuity (tier I and tier II) payable to the widow(er) is reduced by the full amount of the widow(er)s own employee annuity

If a widow or dependent widower is also a railroad employee annuitant and either the widow(er) or the deceased employee had 120 months of railroad service before 1975 the tier I reduction may be partially restored in the survivor tier II amount

If either the deceased employee or the survivor annuitant had some railroad service before 1975 but less than 10 years of service the widow(er)s own employshyee annuity and the tier II portion of the survivor annuity would be payable to the widow(er) The tier I portion of the survivor annuity would be payable only to the extent that it exceeds the tier I portion of the widow(er)s own employee annuity

COST-OF-LIVING INCREASES IN SURVIVOR ANNUITIES

Cost-of-living increases effective December 1 and included in the January payshyment are made on the basis of increases in national prices or in some circumstancshyes average national wages and calculated the same way as cost-of-living increases in employee and spouse annuities

However in the case of widow(er)srsquo annuities computed on the basis of the inishytial minimum amount provided under 2001 legislation the monthly payment will not increase until the amount payable under previous law plus subsequent cost-ofshyliving increases is higher than the initial minimum amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 51

A survivor annuity is not payable for any month the survivor works for an employer covered under the Railshyroad Retirement Act regardless of the survivorrsquos age

Survivors who are receiving social security benefits have their railroad retirement annuity and social secushyrity benefit combined for earnings limitations purposes Prior to the calshyendar year in which full retirement age is attained there is a deduction of $1 in benefits for every $2 earned over an exempt amount ($17040 in 2018) The deduction is $1 for every $3 earned over an exempt amount ($45360 in 2018) for the months in the calendar year in which the indishyvidual attains full retirement age up

to the month of attainment Work deductions stop effective with the month full retirement age is attained In the first year in which a survivor is both entitled to an annuity and has a nonshywork month a full annuity can be paid for those months in which the survivor had low earnings or did not have substantial selfshyemployshyment no matter what total earnings for the year were

These earnings restrictions do not apply to disabled widow(er)s unshyder age 60 or to disabled children However any work or earnings by a disability annuitant must be reportshyed and are reviewed to determine whether they indicate recovery from the disability

WORK AND EARNINGS What are the limitations

As work and earnings may affect the payment of an annuity they must be reported promptly to the RRB in orderto prevent potential overpayments

52 2018 INFORMATIONAL CONFERENCE HANDBOOK

WHEN SURVIVOR PAYMENTS STOP

All survivor payments stop upon death no annuity is payable for the month of death

A widow(er)rsquos annuity will be reduced upon remarriage and in some cases payshyment will be prevented A widow(er)rsquos surviving divorced spousersquos and remarried widow(er)rsquos annuity could also end upon entitlement to another survivor or spouse annuity under the Railroad Retirement Act which is greater than the widow(er)rsquos annuity

A surviving divorced spousersquos or remarried widow(er)rsquos annuity could stop when entitled to a social security benefit which equals or exceeds the deceased emshyployeersquos basic tier I amount and reduces the annuity amount to zero

A widow(er)rsquos remarried widow(er)s or surviving divorced spousersquos annuity which is based on a child in care will end if the child is no longer in the personrsquos care the childrsquos eligibility ceases or in most situations remarriage occurs Providshyed the child in care is not disabled this type of annuity also ends when the child reaches age 18 (for widow(er)s) or age 16 (for remarried widow(er)s and surviving divorced spouses)

A childrsquos or grandchildrsquos annuity will stop if he or she marries reaches age 18 or recovers from the disability upon which his or her annuity was based If the child is 18 and a full-time elementary or high school student the annuity stops when full-time attendance ceases at graduation or upon attainment of age 19 In most cases when a student attains age 19 during the school term benefits are extended to the 2 months following the month age 19 is attained

An annuity will stop if it was based on disability and the beneficiary recovers from the disability before age 60 A disability annuity can be reinstated if the disshyability recurs within 7 years and the widow(er) is still under age 60

A parentrsquos survivor annuity may stop upon remarriage in certain cases a remarshyried parent is entitled to a tier I benefit

Any of the above occurrences must be reported promptly to the RRB in order to prevent an overpayment

PROVISIONS OF THE RAILROAD RETIREMENT ACT 53

LUMP-SUM DEATH BENEFITS

A lump-sum death benefit is payable to certain survivors of an employee with 10 or more years of railroad service or less than 10 years if at least 5 years were after 1995 and a current connection with the railroad indusshytry if there is no survivor immedishyately eligible for a monthly annuity

A lump-sum death benefit may be payable if there is no survivor immediatelyeligible for monthly bene-fits

upon the employeersquos death

If the employee did not have 10 years of service before 1975 the lump sum is limited to $255 and is payable only to the widow(er) living in the same household as the employee at the time of the employeersquos death

If the employee had less than 10 years of service but had 5 years after 1995 he or she must have met social securityrsquos insured status requirements for the lump sum to be payable

If the employee had 10 years of service before 1975 the lump sum is payable to the living-with widow(er) If there is no such widow(er) the lump sum may be paid to the funeral home or the payer of the funeral expenses These lump sums averaged $1010 in fiscal year 2017

If a widow(er) is eligible for monthly benefits at the time of the employeersquos death but the widow(er) had excess earnings deductions which prevented annuity payments or for any other reason did not receive monthly benefits in the 12-month period beginning with the month of the employeersquos death totaling at least as much as the lump sum the difference between the lump-sum benefit and monthly benefits actually paid if any is payable in the form of a deferred lump-sum benefit

The average for all types of lump sums was $933 in fiscal year 2017

The railroad retirement system also provides under certain conditions a resid-ual lump-sum death benefit which ensures that a railroad family receives at least as much in benefits as the employee paid in railroad retirement taxes before 1975 This benefit is in effect a refund of an employeersquos pre-1975 railroad retirement taxes

54 2018 INFORMATIONAL CONFERENCE HANDBOOK

after subtraction of any benefits previously paid on the basis of the employeersquos sershyvice This benefit is seldom payable

APPLYING FOR AN ANNUITY

Applications for railroad retirement or survivor benefits are generally filed at one of the RRBrsquos field offices with a traveling RRB representative at a customer outreach program service location or by telephone and mail The RRB accepts applications up to 3 months in advance of an annuity beginning date which allows the agency to complete the processing of most new claims by a personrsquos retirement date An employee can be in compensated service while filing a disability applishycation provided that the compensated service is not active service and terminates within 90 days from the date of filing When an employee files a disability applishycation while still in compensated service it will be necessary for the employee to provide a specific ending date of the compensation Compensated service includes not only compensation with respect to active service performed by an employee for an employer but also includes pay for time lost wage continuation payments cershytain employee protection payments and any other payment for which the employee will receive additional creditable service

Persons applying for railroad retirement benefits will be required to enroll in either the Direct Deposit program which electronically transfers payments into an individualrsquos checking or savings account or the US Department of the Treasuryrsquos Direct Express program which electronically transfers Federal payments to an inshydividualrsquos Direct Express-issued Debit MasterCardreg Enrollment waivers are availshyable only under very limited conditions

RETIREMENT AND SURVIVOR INFORMATION

Retroactivity of a retirement annuity application is limited to 1 year for disability annuities and 6 months for full age annuities There is generally no retroactivity for reduced age annuities

PROVISIONS OF THE RAILROAD RETIREMENT ACT 55

Applicants for railroad retirement-survivor benefits can check with an RRB field office as to when they can expect their first payment Customer service stanshydards and progress reports are available at RRBgov and in field offices

To expedite filing applicants should contact an RRB field office to schedule a pre-retirement consultation with field staff who will review benefit requirements and answer questions Certain documents are required when filing a railroad retireshyment annuity application including

For employees and spouses

bull Proof of an employeersquos age

bull Proof of any military service

bull Proof of marriage if the spouse is eligible or will shortly become eligible for a spouse annuity A divorced spouse must furnish proof of divorce from the employee

bull Proof of the spousersquos or divorced spousersquos age

bull Proof of a childrsquos relationship and age if the spouse is applying for an annuity based on caring for the employeersquos child

bull Information about any public service pension for which the applicant qualifies

bull Banking information for Direct Deposit of benefit payments (needed at time application is filed)

A photocopy of a record is not accepted as an official document To avoid a delay in application processing any proof submitted must be an orig-inal or certified copy

56 2018 INFORMATIONAL CONFERENCE HANDBOOK

The best proof of age is a certified copy of a civil or church document recordshyed at or close to the time of birth The best proof of marriage is a certified copy of the public or church record or the original marriage certificate A divorced spouse would be expected to furnish a certified copy of the final divorce decree Proof of military service may be a certificate of discharge or any official military record that shows the dates of service

Employees are encouraged to file proofs of age and especially of any military service well in advance of retirement in order to expedite the annuity application process and avoid delays resulting from inadequate proofs

Applicants for disability annuities are required to submit supporting medical inshyformation and should have as much medical documentation and information availshyable as possible at the time of filing They are sometimes asked to take a special medical examination given by a doctor designated by the RRB

An annuity is effective as of the first full month throughout which the employee andor spouse is age 60 with 30 years of service or age 62 in the case of reduced annuities with less than 30 years of service An annuity is effective the first day of the month full retirement age is attained in the case of unreduced annuities with less than 30 years of service

Any social security benefits due the retired employee or family member which begin after 1974 are paid through the RRB Even though the RRB processes payshyment the Social Security Administration is responsible for all adjudication

For survivors

A widow(er) must furnish proof of age proof of marriage and proof of the employeersquos death A surviving divorced spouse must furnish proof of divorce from the employee If applying for a disability annuity the widow(er) must also provide supporting medical evidence A parent must furnish proof of relationship to the emshyployee and proof of support from the employee

PROVISIONS OF THE RAILROAD RETIREMENT ACT 57

If children are eligible for benefits proof of the relationship and age of each child is needed If a child is over age 18 and disabled supporting medical evidence is required Eighteen-year-old students must provide proof of full-time elementary or high school attendance A stepchild of the employee must furnish proof of depenshydency on the employee

Retroactivity of a survivor annuity application is 1 year for disabled widow(er)s and 6 months for full retirement age widow(er)s mothers (fathers) children and parents Retroactivity for widow(er)s ages 60shy61 is 6 months if it does not increase the age reduction (this does not apply to surviving divorced spouses or remarried widow(er)s) Otherwise there is generally no retroactivity for reduced age widow(er)srsquo annuities Lumpshysum death benefit applications must be filed within 2 years after the death of the employee There is no time limit on filing for a residual payment

GARNISHMENTPROPERTY SETTLEMENTS

Garnishment Certain percentages of an employee spouse or survivor annuity may be subject

to legal process (ie garnishment) to enforce an obligation for child support and or alimony payments

Property settlements Employee tier II benefits vested dual benefits and supplemental annuities are

subject to court-ordered property settlements in proceedings related to divorce anshynulment or legal separation Tier I benefits are not subject to property settlements

58 2018 INFORMATIONAL CONFERENCE HANDBOOK

REPRESENTATIVE PAYEES

Railroad retirement or health insurance benefit payments can be made to a repshyresentative payee for a beneficiary if it would best serve the interests of the beneshyficiary Payments made in this way are generally for a child or an adult incapable of using the benefits in his or her own interest The representative payee must use the benefits for the beneficiaryrsquos best interest The benefits are generally used to provide for basic needs The representative payee must report events which could affect the payment of the benefits and be able to account for the benefits

IF REQUIREMENTS FOR BENEFITS ARE NOT MET

Retirement annuities are not payable by the RRB unless the employee has 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of sershyvice at any time Service includes any creditable military service

Survivor annuities are not payable unless the employee had a current connecshytion with the railroad industry and either 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of service at any time

In either of the above circumstances if the requirements are not met the emshyployeersquos railroad retirement (tier I) credits are transferred to the Social Security Administration and treated as social security credits Benefits paid by that agency would accordingly take into account both railroad and social security covered earnshyings

The Railroad Retirement Act does not allow a former railroad employee to withdraw his or her retirement (tier II) taxes Like social security taxes railroad retirement taxes are not refundable unless retirement tax withholding has exceeded annual maximums (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 59 DURATION OF BENEFITS

For practical purposes the average duration of monthly benefits to retired emshyployees is measured by the life expectancies of the beneficiaries at the time their benefits begin which take into account their age sex and other factors A non-disabled male employee retiring today at age 60 may expect to receive his annuity for 224 years on the average while a female age annuitant retiring at age 60 has a life expectancy of 256 years

Table 6--Duration of benefits

AGE OF BENEFICIARY WHEN ANNUITY BEGINS

AVERAGE DURATION (YEARS)

Retired male employee60 65 70

Retired female employee60 65 70

Disabled annuitant1

60

Spouse1

60 65 70

Aged widow(er)1

60 65 70

224 182 143

256 211 170

177

255 212 172

232 190 154

1 For both sexes combined

60 2018 INFORMATIONAL CONFERENCE HANDBOOK

RAILROAD RETIREMENT TAXES

By law railroad retirement tier I payroll taxes are coordinated with social secushyrity taxes and increase automatically when social security taxes rise Employees and employers pay tier I taxes which are the same as social security taxes In addition both employees and employers pay tier II taxes to finance railroad retirement benshyefit payments over and above social security levels A table showing tax rates from 1937 on is at the end of the next chapter

The tier I tax on employees and employers is 765 percent in 2018 The tier II tax on employees is 490 percent while the tier II tax rate on rail employers rail labor organizations and rail employee representatives is 1310 percent in 2018 An employee representative is a labor official of a non-covered labor organization who represents employees covered under the Acts administered by the RRB

Railroad retirement taxes apply to earnings received on an annual basis The amounts of earnings subject to these taxes are determined each year on the basis of national wage levels

DUAL TAX PAYMENTS

Railroad employees who also worked for a social security-covered employer in the same year may under certain circumstances receive a tax credit equivalent to any excess social security taxes withheld

Employees who worked for two or more railroads in a year or who had tier I taxes withheld from their RRB sickness benefits in addition to their railroad earnshyings may be eligible for a tax credit of any excess tier I or tier II railroad retireshyment taxes withheld Employees who had tier I taxes withheld from their suppleshymental sickness benefits may also be eligible for a tax credit of any excess tier I tax Such tax credits may be claimed on an employeersquos Federal income tax return

(Text continues on page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 61

Table 7--2018 Regular Railroad Retirement Taxes

MAXIMUM ANNUAL TAXABLE

TAX RATE EARNINGS

TIER I Employees amp Employers 765 $128400

TIER II Employees 490 $95400 Employers 1310 $95400

Annual regular taxes on employees earning $128400

TIER I TIER II TOTAL

Employees $982260 $467460 $1449720 Employers $982260 $1249740 $2232000

The tier I tax rate is divided into 620 percent for railroad retirement and 145 percent for Medicare hospital insurance The 2018 maximum earnings base for railroad retirement is $128400 and the Medicare hospital insurance tax is applied to all earnings Consequently employee and employer contribushytions continue to be made at the 145 percent rate even after the employee has earned $128400

An additional 09 percent in hospital insurance taxes (235 percent in total) applies to an individualrsquos income exceeding $200000 or $250000 for a marshyried couple filing a joint tax return While employers will begin withholding the additional Medicare tax as soon as an individualrsquos wages exceed the $200000 threshold the final amount owed or refunded will be calculated as part of the individualrsquos Federal income tax return

RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE SYSTEMS

HANDBOOK

US RAILROAD RETIREMENT BOARD Office of the Labor Member

844 North Rush Street Chicago Illinois 60611-1275

RRBgov

Introduction Welcome to our 2018 Informational Conference Program

You are an essential part of our efforts to help railroad workers and their families under-stand the many important benefits available to them under the Railroad Retirement and Rail-road Unemployment Insurance Acts and we greatly appreciate you being here today

The RRBrsquos Informational Conference Pro-gram was started by the Office of the Labor Member back in 1957 Since then it has pro-vided a valuable platform for keeping union officers up-to-date on the benefits available under the railroad retirement system Thou-sands of railroad labor representatives have attended these conferences over the years and have achieved a much better understanding of the provisions and financing of the railroad retirement and unemployment insurance systems and of the administrative organization of the RRB In turn they have helped make our administration of these programs more effective by passing on to their fellow railroad employees the information they acquire at these confer-ences

During this conference some of our field managers will describe and discuss the benefits available under the agencyrsquos retirement-survivor unemployment-sickness and Medicare programs I encourage you to meet and get to know our representatives here today and those in the RRB offices in your local areas They are experts on these programs and will be happy to help you with any railroad retirement questions or problems you may have

Walter A Barrows

Today you will also receive various informational materials that describe the RRBrsquos programs in detail Please take the time to read this material so that you will be knowledgeable about the benefits available to railroad workers and their families The RRB counts on you to help keep your fellow union members informed of these benefit provisions so keep your Informational Kit handy as a source of reference when questions arise Please know that you have an important role in ensuring that each and every railroad employee retiree and dependent receives the benefits to which he or she is entitled and we are grateful for your invaluable assistance

Again thank you very much for your interest in the Informational Conference Program and for taking the time to meet with us here today

Walter A Barrows Labor Member

Contents

1 Development of the Railroad Retirement System 1

The Railroad Retirement Acts of 1934 and 1935 2 The Railroad Retirement Act of 1937

and Later Amendments 3 The Railroad Retirement Act of 1974 8 1981 Amendments 10 The 1983 Railroad Retirement Solvency Act 13 Legislation Enacted 1985-2000 15 The Railroad Retirement and Survivorsrsquo

Improvement Act of 2001 18 Court Decisions Legislation Enacted 2006-2015 21 Employment Payrolls and Tax Collections 22

2 Provisions of the Railroad Retirement Act 23 Creditable Service and Earnings 26 Employee and Spouse Annuities 27 Survivor Benefits 43 Retirement and Survivor Information 54 Employee and Spouse Annuity Formula Components 68 Survivor Annuity Formula Components 78

3 Financing of the Railroad Retirement System 83 Payroll Taxes 84 Financial Interchange 86 Investments 87 Borrowing from General Revenues Related to the Financial Interchange 88 Appropriations from General Revenues 88 Taxation of Railroad Retirement Benefits 91 Financial Position of the Railroad Retirement System 91 Financial Report 93 Tax Tables 96

Contents

4 Health Insurance for the Aged and Disabled 101 Legislative Background 101 Eligibility 103 Part A and Part B Enrollment 103 Explanation of Hospital Insurance Benefits (Part A) 105 Explanation of Medical Insurance Benefits (Part B) 107 Medicare Advantage Plans (Part C) 110 Medicare Prescription Drug Coverage (Part D) 111

5 Development of the RailroadUnemployment Insurance System 113

The Railroad Unemployment Insurance Act of 1938 and Later Amendments 114

The Technical and Miscellaneous Revenue Act of 1988 118 The Railroad Unemployment Insurance

Amendments Act of 1996 121 Employment and Benefits 122

6 Provisions of the Railroad UnemploymentInsurance Act 123 Benefit Provisions 123 Disqualifications 130 Free Placement Service 131 Payments 131 Getting Unemployment Benefits 132 Getting Sickness Benefits 133

7 Financing Unemployment and Sickness Insurance 141 Contributions 141 Railroad Unemployment Insurance Account 143 Financial Report 145

8 Administration of the Railroad Retirement System 147 Administration 147 Keeping Beneficiaries Informed 151 Program Integrity 152

I n d e x 155

1Development of the Railroad Retirement System

Private pension plans originated in the railroad industry in 1874 when the first for-mal industrial pension plan in North America was established By 1927 over 80 per-cent of all railroad employees in the United States worked for employers who had for-mal plans in operation but only a small proportion of employees ever received benefits under these plans The pension plans had a number of serious defects They generally paid inadequate benefits and had limited provisions for disability retirement Credits could not be transferred freely from employer to employer and the employers could terminate the plans at will With few exceptions the plans were inadequately financed and could not withstand even temporary difficulties

The Great Depression of the early 1930s led to movements for retirement plans on a national basis because few of the nationrsquos elderly were covered under any type of retirement plan Railroad employees were particularly concerned because the private

Why a separate railroad retirement system Private pension plans originated in the railroad industry

By the 1930s employment conditions had deteriorated

Many older workers in railroad industry

Railroad retirement system broadened existing programs under uniform national plan

1

2 2018 INFORMATIONAL CONFERENCE HANDBOOK

railroad pension plans could not keep up with the demands made upon them by the general deterioration of employment conditions and by the great accumulation of older workers in the industry While the social security system was in the planning stage railroad workers sought a separate railroad retirement system which would continue and broaden the existing railroad programs under a uniform national plan The proposed social security system was not scheduled to begin monthly benefit payments for several years and would not give credit for service performed prior to 1937 while conditions in the railroad industry called for immediate benefit pay-ments based on prior service

Legislation was enacted in 1934 1935 and 1937 to establish a railroad retire-ment system separate from the social security program legislated in 1935 Such legislation taking into account the particular circumstances of the rail industry was not without precedent Many laws pertaining to rail operations and safety had already been enacted since the Interstate Commerce Act of 1887 Since passage of the Railroad Retirement Acts of the 1930s numerous other railroad laws have sub-sequently been enacted

THE RAILROAD RETIREMENT ACTS OF 1934 AND 1935

The Railroad Retirement Act of 1934 set up the first retirement system for non-governmental workers in this country to be administered by the Federal Govern-ment However the Act was declared unconstitutional by a Federal district court and this decision was sustained by the Supreme Court The Railroad Retirement and Carriersrsquo Taxing Acts of 1935 were enacted to avoid the constitutional difficul-ties encountered by the 1934 Act However these Acts were also challenged in the courts and a Federal district court held that neither the employees nor their employ-ers could be compelled to pay railroad retirement taxes The court however did not prohibit the payment of benefits and the Railroad Retirement Board (RRB) began awarding annuities in July 1936 under the provisions of the 1935 Act

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 3

While an appeal was pending railroad management and labor at the request of President Roosevelt formed a joint committee to negotiate their differences The result was a memorandum of agreement which led to the Railroad Retire-ment and Carriersrsquo Taxing Acts of 1937 establishing the railroad retirement sys-tem The pensions of retired employees on the railroadsrsquo private pension rolls were transferred to the RRBrsquos rolls with pension reductions restored The benefit payments of almost 50000 pensioners were taken over by the RRB in July 1937 There followed an immediate reduction in both the number of employed and un-employed older railroad workers By the end of 1938 the number of workers age 65 and over in active railroad service was less than one-half of the number two years earlier Almost 100000 employees had retired under the system by that date 80 percent of them under the nondisability provisions

THE RAILROAD RETIREMENT ACT OF 1937 AND LATER AMENDMENTS

The 1937 Act set up a staff retirement plan which provided annuities to aged retired employees based on their creditable railroad earnings and service The amounts of retirement annuities awarded were directly related to the employeersquos earnings and length of service with a maximum of $120 a month Creditable earn-ings were limited to a maximum of $300 a month while no more than 30 years of service could be credited when service before 1937 was counted Annuities could be paid at age 65 or later regardless of length of service or at ages 60-64 (on a re-duced basis) after 30 years of service

The conditions for paying annuities based on disability were severely restricted The disability had to be total and permanent and 30 years of service were required for full annuities Employees could receive disability annuities at ages 60-64 after less than 30 years of service but on a reduced basis

The Act made little provision for dependents of deceased employees and no provision for spouse annuities A survivor could receive a lump sum equal to 4 percent of the employeersquos creditable earnings after 1936 less any annuity payments

4 2018 INFORMATIONAL CONFERENCE HANDBOOK

already made In addition a retiring employee could elect to receive a reduced an-nuity in order to provide an annuity to his surviving spouse

The system was financed by a schedule of taxes beginning with 275 percent each on employers and employees applicable to the first $300 of monthly compen-sation

Amendments to the 1937 Act Numerous amendments after 1937 increased benefits and added to what began

as a staff retirement system social insurance features similar to those provided by the social security system

The first significant sets of amendments were enacted in 1946 and 1951 By initiating coordination in certain areas with the social security system they laid the foundation for the evolution of the systemrsquos present structure Amendments enacted in 1946 added survivor benefits to the railroad retirement system which were simi-lar to those provided under social security coverage but approximately 25 percent higher

These amendments also introduced the first step of coordination with the social security system by dividing jurisdiction over individual survivor benefits between the RRB and the Social Security Administration Benefits to survivors were there-after based on combined railroad retirement and social security earnings credits

Provisions for annuities based on occupational disabilitymdasha staff retirement featuremdashwere also established by the 1946 amendments The provision for occupa-tional disability annuities recognized that employees who were not totally disabled could be prevented from earning a living because they could not perform their reg-ular railroad jobs The 1946 amendments also reduced the service requirements for total disability annuities making it possible for comparatively young disabled employees to receive benefits

In addition the amounts of disability retirement annuities were increased through the elimination of the reduction for employees with less than 30 years of service and the extension of new minimum provisions of the law to annuities based

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 5

on disability In 1954 annuities were provided for disabled children of deceased employees And in 1968 disabled widows ages 50-59 were added to those who could receive benefits

In 1951 amendments added annuities for the spouses of retired railroad em-ployees This legislation completed the addition of social insurance features to the railroad retirement system and expanded the coordination of the railroad retirement and social security systems

Provision was made for social security to assume jurisdiction of benefits for employees not having at least 10 years of railroad service and a minimum guaranty was provided to ensure that railroad retirement benefits would be no less than the benefit or additional benefit the social security system would have paid on the basis of the railroad service involved In addition a financial interchange was estab-lished between the two systems to apportion the costs of benefits and taxes related to railroad service on an equitable basis

In 1965 provision was made to coordinate the railroad retirement tax base and tax rate with those of the social security system This provision and the existing pro-visions for the financial interchange served as an operating vehicle through which the Medicare program was easily extended in 1965 to railroad employees and mem-bers of their families on the same basis as it was provided for social security bene-ficiaries The addition of a strictly staff benefit for career employees was provided in 1966 in the form of supplemental railroad retirement annuities

By 1970 amendments to the Act provided for regular annuities of more than double the amount provided under the original formula The amounts of earnings creditable and taxable were $650 a month in 1970 compared with $300 originally Tax rates had substantially increased in order to finance the new types of benefits the increases in benefit amounts and other liberalizations in the program The rate of regular railroad retirement taxes still divided equally between employees and employers in 1971 was 995 percent on each as compared with 35 percent in 1946

The annuities being paid in 1970 included a general benefit increase of 15 per-cent provided in that year following a social security benefit increase of 15 percent

6 2018 INFORMATIONAL CONFERENCE HANDBOOK

In the following two years of an inflationary spiral in the national economy social security and railroad retirement benefits were again substantially increased by 10 percent in 1971 and 20 percent in 1972 However these three increases were pro-vided for railroad retirement annuities on a temporary basis only The costs of mak-ing these three increases aggregating 518 percent permanent without adequate fi-nancing would have jeopardized the solvency of the system Congress directed that a Commission on Railroad Retirement be formed to study the railroad retirement system and its financing for the purpose of recommending to Congress changes in the system that would ensure adequate benefit levels on an actuarially sound basis

The preliminary recommendations of management and labor for revision of the railroad retirement system recorded in a Memorandum of Understanding were en-acted by the Congress in 1973 The major provisions which reflected components of an industry-wide wage settlement effected a redistribution of railroad retirement taxes and earlier retirement as follows Generally effective October 1 1973 em-ployee and employer tax rates under the Railroad Retirement Tax Act were revised so as to reduce the employee rate to the percentage rate paid by employees in social security-covered employment with the employer absorbing the difference so that total tax income to the program was maintained at the level in effect before the change Employee rates consequently were lowered from 1060 percent of credit-able earnings to 585 percent employer rates correspondingly increased from 1060 percent to 1535 percent Effective July 1 1974 all employees at least 60 years of age and having 30 years or more of creditable railroad service could retire without their annuities being subject to reduction for retirement before age 65 Under previ-ous law only female employees were granted this advantage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 7

Commission on Railroad Retirement REPORT

Major changes in the law were recommended in the Commissionrsquos 1972 report as its basic solution to the serious problems of the system Essentially these in-volved a proposed restructuring of the railroad retirement system with two separate tiers of benefits tier I being a social security-type benefit and tier II a supplemental staff benefit In addition the Commission recommended a phase-out of dual railroad retirement-social security benefits with some protection for the vested rights to such benefits already acquired by employees

Under the 1937 Act an individual engaging in covered employment under both the Railroad Retirement Act and the Social Security Act was entitled to benefits under both Acts assuming he or she met at least the minimum requirements for benefit eligibility By the early 1970s approximately 40 percent of all beneficiaries on the RRBrsquos rolls were also receiving social security benefits Because of certain duplications in their dual benefits considered a windfall element the total of their benefits from both systems averaged more than the annuities of railroad employees who worked in the rail industry exclusively and who had paid proportionally higher retirement taxes for the purpose of receiving higher benefits At the same time dual benefits were a cost to the railroad retirement system because they reduced the systemrsquos income from its financial interchange with the social security system (By the mid-1970s the costs to the railroad retirement system of dual benefits exceeded $450 million per year and would have been a major factor in bankrupting the railroad retirement system if allowed to continue The cumulative total loss to the system by 1974 had been about $4 billion)

Upon the release of the Commissionrsquos report Congress ordered that represen-tatives of employees and representatives of carriers negotiate mutual recommen-dations for a restructuring of the railroad retirement system which would put it on a sound financial basis taking into account the report and recommendations of the Commission on Railroad Retirement

8 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT ACT OF 1974

The Railroad Retirement Act of 1974 reflecting the basic principles of the Commission Report and incorporating the subsequent management-labor agree-ment was enacted on October 16 1974

Two-Tier Formulas The 1974 Act provided a first tier formula yielding amounts equivalent to social

security benefits taking into account both railroad retirement and nonrailroad so-cial security credits A second tier formu-la based on railroad service exclusively provides benefits comparable to those paid over and above social security ben-efits by other industrial pension systems The total annuity yielded by the tier for-mulas continued traditional levels of rail-road retirement benefits and reflected the three cost-of-living increases aggregating 518 percent which had been provided between 1970 and 1972 on a temporary basis

Dual Benefit Phase-Out

1974 Act Features

two-tier benefit formula

phase-out of vested dual benefits

cost-of-living increases

benefit improvements

The 1974 Act eliminated duplications in dual railroad retirement-social security benefits for new hires and individuals not vested as of December 31 1974 under both programs Dual benefits for vested employees were protected through provi-sion for payment of an amount in their annuities referred to as a vested dual benefit However such vested dual benefit amounts were not allowed to increase because of any social security or railroad credits earned after December 31 1974

For career employees vesting was defined as having 10 years of railroad ser-vice on December 31 1974 and in addition having enough quarters of coverage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 9

under the social security program to be entitled to a benefit at age 62 if no further social security credits were acquired after December 31 1974

Vesting for employees who had fully qualified for benefits under both systems but had left the industry prior to 1974 presented a difficult problem The 1974 Act favored employees who had remained in the railroad industry more than those who left railroad employment Accordingly active or long-term employees in the rail-road industry in a sense were placed in the same situation as employees who had already retired while former employees were made subject to more stringent re-quirements The resulting vesting provisions were subsequently tested in the courts and upheld by the US Supreme Court in 1980

Cost-of-Living Increases The 1972 amendments to the Social Security Act introduced provisions for cost-

of-living adjustments in social security benefits on the basis of changes in the Con-sumer Price Index Under the two-tier plan the first tier railroad retirement benefit increases automatically the same way social security benefits increase Four sepa-rate tier II cost-of-living adjustments were provided during the six-year period com-mencing January 1 1975 (A fifth increase was provided in subsequent legislation)

Benefit Improvements The 1974 Act also provided improvements in existing benefits The initial agree-

ment of labor and management had enabled employees to retire on or after July 1 1974 on unreduced annuities if they met the eligibility requirements of attaining age 60 and completing 30 years of service But an employee could not receive a supplemental annuity until age 65 nor could a spouse receive a spouse annuity until the employee reached age 65 The Act revised the eligibility requirements for these benefits so that they were coordinated directly with the employee annuity requirements Under the 1937 Act the vast majority of widows and other survivors received benefits based upon 110 percent of the comparable social security benefit and the resulting amount was generally felt to be inadequate in relation to the level of other railroad benefits The 1974 Act survivor formula increased the calculation basis to 130 percent from the former 110 percent

10 2018 INFORMATIONAL CONFERENCE HANDBOOK

Financing It was anticipated that the changes in the benefit formulas the reduction in dual

benefits higher investment earnings plus provisions for additional funds from the Federal Government to pay the phase-out costs of dual benefits together would place the railroad retirement system on a reasonably sound basis However the cost estimates made at that time did not anticipate the resurgence of substantial inflation in the latter part of the decade which led to a recurrence of financial difficulties for the railroad retirement system

With regard to financing the phase-out costs of dual benefits the joint manage-ment-labor committee initially proposed that the cost of vested dual benefit pay-ments be paid out of the social security trust funds as this element was basically a social security benefit However Congress concluded that the cost should be borne by the General Treasury It was thought that it would be unfair to impose this cost upon current and future employees who would not (except where vested rights are involved) be permitted to receive dual benefits upon retirement or upon the rail-roads since the excess benefit arose out of nonrailroad employment performed by these individuals Payment out of the General Treasury was supported by a prec-edent regarding military service and by the fact that the dual benefit problem had been brought about by prior congressional action repealing past dual benefit restric-tions over the objections of the railroads

1981 AMENDMENTS

By 1980 recurring inflation and recession combined with other factors placed financial stresses on the railroad retirement system which made it clear that further financial action was needed to maintain the system Railroad retirement amend-ments were subsequently enacted on August 13 1981 as part of an Omnibus Bud-get Reconciliation Act The amendments were generally effective October 1 1981

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 11

Taxes These amendments increased railroad retirement taxes on both rail employers

and employees While tier I taxes on employers and employees remained at the same rate as social security taxes 665 percent in 1981 the 95 percent tier II tax paid by employers was increased to 1175 percent and employees assumed a tier II tax of 2 percent The amendments also gave the RRB the authority to borrow from US Treasury general funds on the basis of forthcoming financial interchange in-come if Railroad Retirement Account funds were insufficient to pay benefits during a month

Benefit Provisions Although the two-tier benefit structure provided by the 1974 Act was left intact

changes were made in the tier II formula and there were other changes in benefit provisions The amendments revised the employee spouse and survivor formulas for annuity portions paid over and above social security levels Generally for career retirees whose annuities are awarded on or after October 1 1981 the simplified formula yields awards that automatically keep pace with average wage increas-es in the last 60 months of service The 1981 law continued tier II employee and spouse cost-of-living increases while revising survivor cost-of-living increases to correspond with those provided employees and spouses It also broadened the cur-rent connection requirement applicable to certain career employee benefits While the amended law eliminated future supplemental annuity closing dates it restricted future supplemental annuity eligibility to employees with some service prior to Oc-tober 1981 (Under prior law an employee who worked in railroad service after a specified closing date based on his or her 65th birthday would permanently forfeit entitlement to a supplemental annuity) In addition the amendments provided ben-efits for divorced spouses surviving divorced spouses and remarried widow(er)s which are like those provided under the Social Security Act

12 2018 INFORMATIONAL CONFERENCE HANDBOOK

This legislation also required prorated adjustments in individual vested dual benefit payments depending upon the amounts appropriated to the fund created for these payments and the level of vested dual benefit payments was made contingent on the annual Federal budget and appropriations process The amendments restrict-ed the further award of vested dual benefit payments to vested employees with dual coverage on their own earnings and precluded further awards of vested dual benefit payments to spouses or widow(er)s Furthermore after 1981 no further cost-of-liv-ing adjustments are made to vested dual benefit payments

Other Financing Provisions The 1981 amendments mandated in the event of certain adverse financial in-

dicators that railway management and labor and the White House make further financing recommendations to Congress And the new law required the RRB to reduce annuity levels during any fiscal year in which it appears there would be insufficient funds with which to make full benefit payments on a timely basis for every month of the year

In the first half of 1981 when the amendments were developed it was antici-pated that the financing arrangements would provide the railroad retirement system with adequate funding throughout the 1980s However the continuing recession in the national economy depressed rail traffic levels to the extent that large-scale lay-offs were underway by the first quarter of 1982 Average monthly employment in fiscal year 1982 dropped to 457000 from the 512000 average of the previous year and it subsequently declined to 388000 in the first quarter of 1983 The decline in employment limited payroll tax income accordingly In addition increased unem-ployment benefit payments resulting from the layoffs made such unprecedented de-mands on the Railroad Unemployment Insurance Account that it owed $500 million to the Railroad Retirement Account by the end of March 1983

The condition of the Railroad Retirement Account consequently deteriorated to the point that the RRB was required to prepare to reduce annuity levels on October 1 1983 by an estimated 40 percent of tier II portions in the absence of remedial financial legislation

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 13

THE 1983 RAILROAD RETIREMENT SOLVENCY ACT

The scheduled annuity reductions were averted by enactment of the Railroad Retirement Solvency Act on August 12 1983 The 1983 Act was based on nego-tiated recommendations of management and labor and also incorporated recom-mendations of Congress and the Administration The amendments were in part patterned after major social security amendments enacted earlier in the year which had already effected changes in railroad retirement taxes and benefits through coor-dinating provisions in the Railroad Retirement Act

Taxes Under the Railroad Retirement Solvency Act tier II taxes on employers in-

creased from 1175 percent to 1275 percent in January 1984 to 1375 percent in January 1985 and to 1475 percent in January 1986 Tier II taxes on employees increased from 2 percent to 275 percent in 1984 to 350 percent in 1985 and to 425 percent in 1986 And since 1985 railroad retirement taxes are applied to earnings on an annual rather than a monthly basis As a result of the 1983 so-cial security amendments tier I taxes on employers and employees increased from 670 percent to 7 percent in January 1984 to 705 percent in 1985 to 715 per-cent in 1986 to 751 percent in 1988 and to 765 percent in 1990 (The tier I tax rate has remained unchanged since 1990 however it was temporarily reduced to 565 percent on employees in 2011 and 2012)

The 1983 social security amendments subjected railroad retirement tier I annui-ty portions to Federal income taxes on the same basis as social security benefits and the Solvency Act made tier II benefits and vested dual benefit payments subject to Federal income tax on the same basis as private pensions beginning with tax year 1984 The revenues raised from income taxes on tier I and vested dual benefits are used for benefit payments Revenues raised by the tax on tier II benefits were to be used for benefit payments through fiscal year 1988 after which the revenues would remain in general US Treasury funds Subsequent legislation extended these trans-fers permanently

14 2018 INFORMATIONAL CONFERENCE HANDBOOK

Other Financing Provisions The Railroad Retirement Account was reimbursed in three installments from the

general fund of the US Treasury for shortfalls in vested dual benefit appropriations between 1975 and 1981 The railroad retirement systemrsquos authority to borrow gen-eral US Treasury funds until the RRB receives financial interchange funds from the social security system was broadened to place financial interchange monies in the Railroad Retirement Account on a current basis

Benefit Provisions The 1983 social security amendments deferred July 1983 cost-of-living increas-

es to January 1984 and required that future increases be made in January of subse-quent years

This deferral applied to railroad retirement tier I annuity amounts as well as social security benefits The Railroad Retirement Solvency Act correspondingly changed the future payment dates of tier II cost-of-living increases from July 1 to January 1 with the first increase payable on January 1 1985 It also required an offset of the dollar amount of the next five percent of tier I cost-of-living increases from tier II benefits

The Act modified early retirement provisions for 30-year employees attaining age 60 after June 1984 by applying certain reductions to the tier I portions of their annuities if they retired before age 62 The reductions did not affect tier II benefits and employees who acquired 30 years of service and attained age 60 before July 1 1984 could still retire at any time with full benefits as under prior law (The Rail-road Retirement and Survivorsrsquo Improvement Act of 2001 as described on pages 18-21 eliminated these reductions for 6030 employees retiring after 2001) The 1983 law established a five-month waiting period for railroad retirement disability annuities just as for social security disability benefits and altered the tier I compu-tation of annuities subject to reduction for certain non-covered service pensions It required the RRB to honor court orders that treat non-tier I railroad retirement ben-efits as property subject to division in proceedings related to divorce annulment or legal separation And the Act limited the retroactivity of applications for benefits to a maximum of six months to conform to the Social Security Act except for disabil-

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 15

ity benefit applications which can retroact 12 months

The Solvency Act eliminated annuity reductions made under prior law when military service was counted as railroad service and was also the basis for benefits under another Federal law It conformed railroad retirement student benefit provi-sions to social security student benefit provisions and eliminated age reductions applied to disabled widow(er)srsquo annuities for months they were under age 60 when their annuities began

LEGISLATION ENACTED 1985-2000

The Balanced Budget and Emergency Deficit Control Act of 1985 known as the GrammRudmanHollings Act enacted in December 1985 required decreas-es in vested dual benefit payments during the 1986 fiscal year and suspension of the January 1986 cost-of-living increase in the tier II portions of railroad retirement annuities GrammRudman andor related budget legislation reduced vested dual benefits and supplemental annuities periodically in subsequent years

Budget reconciliation legislation enacted in April 1986 included changes in Internal Revenue Code provisions increasing income taxes on some railroad re-tirement annuities Effective with tax year 1986 the tier I portion of a railroad retirement annuity which is treated as a social security benefit for Federal income tax purposes was limited for tax purposes to amounts actually equivalent to social security benefits This primarily affected tier I early retirement benefits payable be-tween ages 60 and 62 and some occupational disability benefits that are now treated like private pensions

The Tax Reform Act of October 1986 eliminated for annuities beginning af-ter July 1 1986 the three-year recovery rule for contributory pensions which had been applicable to railroad retirement benefits exceeding social security equivalent levels Under the tax reform law railroad retirement benefits exceeding social se-curity equivalent levels are taxable immediately upon retirement For tax reporting purposes benefit payments are prorated on the basis of estimated life expectancies to exempt an employeersquos previously-taxed pension contributions

16 2018 INFORMATIONAL CONFERENCE HANDBOOK

While the railroad retirement trust funds held a reserve of $69 billion at the end of fiscal year 1987 the continuing decline in railroad employment had caused concern over the systemrsquos financing in the next century

A Federal budget deficit reduction bill enacted in December 1987 increased tier II tax rates in January 1988 to 1610 percent on employers and 490 percent on employees and extended for one year until October 1 1989 the time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits

1988 Amendments The Railroad Unemployment Insurance and Retirement Improvement Act

was included in the Technical and Miscellaneous Revenue Act of 1988 enacted November 10 1988 The railroad retirement amendments in the Act eliminated the provision suspending annuities of retired employees and spouses who work for their last pre-retirement nonrailroad employers but provided for tier II earnings deduc-tions in such cases The Act also increased the amount disabled railroad retirement annuitants could earn without reducing their benefits from $200 per month to $400 per month exclusive of work-related expenses

In addition it provided railroad retirement military service credits under cer-tain conditions for railroad workers who served in the Armed Forces between June 15 1948 and December 15 1950 but had not been allowed service credit be-cause there was not a national state of emergency in force during this period before the Korean War

The Act also provided a lump sum equal to railroad retirement tier II payroll taxes deducted from separation or severance payments made after 1984 to be paid upon retirement to employees meeting minimum service requirements if the sepa-ration or severance payments did not yield additional railroad retirement service or earnings credits

Social security amendments included in this legislation modified the non-cov-ered service pension reductions applied to the social security and tier I railroad re-tirement benefits of employees awarded certain Federal State or local government pensions in recent years

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 17

Omnibus budget reconciliation legislation enacted in 1989 included a num-ber of railroad retirement and social security provisions affecting payroll taxes and benefits in 1990 and subsequent years The budget law increased the amount of earnings subject to social security and railroad retirement payroll taxes and spec-ified that 401(k) contributions and some employer-paid life insurance premiums are subject to railroad retirement payroll taxes conforming railroad retirement with social security

The 1989 budget law also revised sequestration of railroad retirement supple-mental annuities under the GrammRudman Act in fiscal year 1990 Subsequent 1990 omnibus budget legislation permanently exempted supplemental annuities from reductions under the GrammRudman Act The 1990 budget law also increased the maximum compensation subject to Medicare hospital insurance payroll tax and mandated an expedited payroll tax deposit schedule for large employers covered by social security or railroad retirement Budget legislation enacted in 1993 made all earnings subject to the Medicare payroll tax and for those in high tax brackets made a larger amount of social security and railroad retirement tier I benefits sub-ject to Federal income tax

The time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits was extended one year in 1989 and 1990 budget legislation further extended the date until October 1 1992 In 1994 legislation extended the transfers retroactive to October 1992 on a permanent basis which improved the financing of the railroad retirement system

Legislation enacted in April 2000 eased the earnings restrictions affecting so-cial security beneficiaries working after full retirement age The legislation also applied to railroad retirement annuitants but it did not change the railroad retire-ment work restrictions applying to last pre-retirement employment which are not included in the Social Security Act

18 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT AND SURVIVORSrsquo IMPROVEMENT ACT OF 2001

The Railroad Retirement and Survivorsrsquo Improvement Act of 2001 signed into law December 21 2001 liberalized early retirement benefits for 30-year employees and their spouses eliminated a cap on monthly retirement and disability benefits lowered the minimum service require-ment from 10 years (120 months) to 5 2001 Act years (60 months) of service if performed Benefit Changesafter 1995 and provided increased bene-

6030 retirementfits for some widow(er)s Financing sec- maximum provision eliminated tions in the law provided for the invest-

ment of railroad retirement funds in non- basic service requirement lowered

governmental assets adjustments in the widow(er)srsquo benefits

payroll tax rates paid by employers and employees and the repeal of a supplemental annuity work-hour tax The law was based on joint recommendations to Congress negotiated by a coalition of rail labor organizations and rail freight carriers

6030 Retirement The law amended the Railroad Retirement Act by eliminating the early retire-

ment reduction applied to the annuities of 30-year employees retiring between the ages of 60 and 62 if their annuities begin January 1 2002 or later The spouses of such employees are also eligible for full annuities at age 60 Full 6030 benefits had not been payable since 1983 legislation reduced such early retirement benefits

Maximum Provision The law eliminated effective January 1 2002 a maximum on the amount of

combined monthly employee and spouse benefit payments which had been intend-ed to prevent benefits from exceeding an amount based on an employeersquos earnings immediately prior to retirement This maximum provision had the unintended ef-fect of reducing benefits for former employees with no earnings or low earnings in the 10-year period prior to retirement and for long-service employees with mod-erate earnings

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 19

Basic Service Requirement The legislation lowered the minimum eligibility requirement for regular rail-

road retirement annuities from 10 years (120 months) of creditable railroad service to 5 years (60 months) of creditable railroad service for those with 5 years of ser-vice rendered after 1995 This provision was effective January 1 2002 and was not retroactive

Widow(er)srsquo Benefits The legislation established an initial minimum amount based on the two-tier

annuity amount that would have been payable to the railroad employee at the time the widow(er)rsquos annuity is awarded minus any applicable reductions Widow(er)rsquos annuities computed on the basis of the initial minimum amount will not increase until the amount payable under previous law plus cost-of-living increases is higher than the initial minimum amount

This provision was effective February 1 2002 and was not retroactive It ap-plied to widow(er)s on the rolls before the effective date only if the annuity the wid-ow(er) was receiving on the effective date was less than she or he would have re-ceived had the legislation been in effect on the date the widow(er)rsquos annuity began

Investment Changes The legislation provided for the transfer of railroad retirement funds from the

Railroad Retirement Accounts to the National Railroad Retirement Investment Trust whose Board of seven trustees is empowered to invest Trust assets in nongovern-mental assets such as equities and debt as well as in governmental securities The sole purpose of the Trust is to manage and invest railroad retirement assets

The Trust is a tax-exempt entity inde-pendent from the Federal Government Its Board of Trustees is comprised of the fol-

2001 Act Financing Changes

investments

payroll tax rates

supplemental annuity funding

20 2018 INFORMATIONAL CONFERENCE HANDBOOK

lowing three members selected by rail labor to represent the interests of labor three members selected by rail management to represent management interests and one independent member selected by a majority of the other six members The Trustees are subject to fiduciary standards similar to those required by the Employee Retire-ment Income Security Act The Trust must submit an annual report to Congress on its operations

Effect on Payroll Tax Rates The legislation reduced tier II tax rates on rail employers including rail labor

unions in calendar years 2002 and 2003 and beginning with 2004 provides auto-matic adjustments in the tier II tax rates for both employers and employees It also repealed the supplemental annuity work-hour tax rate paid by employers beginning with calendar year 2002

The tier II tax rate on rail employers and rail labor organizations was reduced from 1610 percent to 1560 percent in 2002 and to 1420 percent in 2003 The tier II tax rate for rail employee representatives was 1475 percent in calendar year 2002 and 1420 percent in 2003

While there was no change in the tier II tax rate of 490 percent on employees in the years 2002 and 2003 starting with calendar year 2004 tier II taxes on both employers and employees have been based on the ratio of certain asset balances to the sum of benefits and administrative expenses (the average account benefits ratio) Depending on the average account benefits ratio tier II taxes for employers range between 820 percent and 2210 percent while the tier II tax rate for employ-ees ranges between 0 percent and 490 percent In 2005 as a result of this provision the tier II tax rate on employees decreased to 440 percent from 490 percent The rate on employers and rail employee representatives decreased to 1260 percent from 1310 percent The 2006 rates were the same as in 2005 In 2007 the tier II tax rate on employees decreased from 440 percent to 390 percent and on employers it decreased from 1260 percent to 1210 percent Those rates remained the same through 2012 In 2013 the tier II tax rate on employees increased from 390 percent to 440 percent The rate on employers increased from 1210 percent to 1260 per-cent Those rates did not change in 2014 In 2015 the tier II tax rate on employees increased from 440 percent to 490 percent The rate on employers increased from

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 21

1260 percent to 1310 percent Those rates remain unchanged through 2018

Supplemental Annuity Funding In addition to repealing the supplemental annuity work-hour tax the legislation

eliminated the separate Supplemental Annuity Account Supplemental annuities are funded through the National Railroad Retirement Investment Trust

COURT DECISIONS LEGISLATION ENACTED 2006-2015

The Pension Protection Act of 2006 was signed into law August 17 2006 The Act effective August 17 2007 provided divorced spouses a railroad retirement an-nuity independent of the employeersquos actual entitlement and extended court-ordered partition payments to surviving former spouses Legislation enacted January 12 2007 increased the amount employees receiving railroad retirement disability an-nuities can earn without losing any benefits Legislation modifying partition pay-ments was signed into law on December 23 2008

The Tax Relief Unemployment Insurance Reauthorization and Job Cre-ation Act of 2010 was signed into law December 17 2010 Among its provisions the Act temporarily lowered the social security payroll tax rate on employees and the corresponding tier I payroll tax rate on railroad employees by 2 percentage points for calendar year 2011 The Temporary Payroll Tax Cut Continuation Act of 2011 extending the temporary payroll tax reduction through February 2012 was signed into law December 23 2011 The Middle Class Tax Relief and Job Creation Act of 2012 signed into law February 22 2012 extended the reduction through 2012

On June 26 2013 the Supreme Court found unconstitutional Section 3 of the Defense of Marriage Act which had prevented the Federal Government from recognizing marriages of same-sex couples As a result the RRB began accepting applications for benefits from those eligible spouses in same-sex marriages who were validly licensed under State law On June 26 2015 the Supreme Court further found that the Constitution required all States to license same-sex marriages and to recognize lawfully licensed same-sex marriages performed in other States

22 2018 INFORMATIONAL CONFERENCE HANDBOOK

EMPLOYMENT PAYROLLS AND TAX COLLECTIONS

Railroad employment has varied considerably over the years The total number of employees with some service in a year has ranged from a high of 3 million in the war year 1945 to a low of 247000 in calendar year 2010 In 2016 total employment was 253000 the first decrease since 2010 The average number employed has var-ied between a high of 17 million in the war years 1944-45 to a low of approximate-ly 221000 in 2010 Average employment in 2016 fell 16000 from the previous year to 231000

In 2017 total railroad payroll was an estimated $199 billion while the taxable payrolls (on the $127200 tier I and the $94500 tier II annual bases) were an esti-mated $186 billion and $172 billion respectively Tier I payroll includes miscella-neous compensation such as sick pay The employee tax rates for 2017 were 765 percent for tier I and 49 percent for tier II Employer rates were 765 percent and 131 percent respectively The tier I rate is divided into 62 percent for retirement disability and 145 percent for Medicare hospital insurance While the 62 percent rate applied to the $127200 annual base all of an employeersquos compensation was subject to the 145 percent Medicare tax Employees pay an additional 09 percent in Medicare hospital insurance taxes on earnings above $200000 (for those who file an individual return) or $250000 (for those who file a joint return) Retirement tax collections in 2017 were approximately $60 billion

benefits awarded since inception of the railroad retirement program

through fiscal year 2017

bull 2061000 to RETIRED EMPLOYEES bull 1233000 to SPOUSES bull 2534000 to SURVIVORS

at the end of fiscal year 2017 517000 BENEFICIARIES were being paid $125 billion a year in benefits

SCOPE OF RRB OPERATIONS

2Provisions of the Railroad Retirement Act

Service performed for a covered employer or as an employee representative is creditable toward all types of benefits under the Railroad Retirement Act Covered employers include interstate railroads and their affiliates engaged in railroad-conshynected operations as well as employer associations and national railroad labor orshyganizations and their subordinate units In some cases military service may be counted as railroad service

Service for an employer is creditable if it is compensated and the employee is subject to the continuing supervision of the employer Benefits are based on earnings credits and months of service Earnings are creditable up to certain annual maximums on the amount of compensation subject to railroad retirement taxes as shown in the table at the end of the next chapter Credit for a month of railroad service is given for every month in which an employee had some compensated service for an emshyployer covered by the Railroad Retirement Act even if only one dayrsquos service is performed in the month (However local lodge compensation earned after 1974 is disregarded for any calendar month in which it is less than $25) Special rules may apply for crediting of service months resulting from a settlement for an on-the-job injury

Benefits are based on earnings credits and months of service

23

24 2018 INFORMATIONAL CONFERENCE HANDBOOK

The basic requirement for railroad retirement annuities is at least 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if such service was performed after 1995 Service months need not be conshysecutive

Additional service months may be deemed in some cases where an employee does not actually work in every month of the year For additional service months to be deemed the employeersquos compensation for the year up to the tier II maximum must exceed an amount equal to 112 of the tier II maximum multiplied by the numshyber of service months actually worked

The excess amount is then divided by 112 of the tier II maximum the result rounded up to a whole number equals the maximum number of months that may be deemed as service months for that year The employee must be in an employment relation (on an approved leave of absence) with a covered railroad employer or be an employee representative during a deemed service month An employee may never be credited with more than 12 service months in any calendar year

Except for benefits paid for on-the-job injuries sickness benefits are subject to tier I railroad retirement taxes if paid within 6 months after the month in which the employee last worked They are credited as compensation for tier I benefits but are not credited as service months

Basic Service Requirement for Railroad Retirement Annuities

120 months of creditable railroad service

or

60 months if such service was performed after 1995

PROVISIONS OF THE RAILROAD RETIREMENT ACT 25 CREDITABLE MILITARY SERVICE

Military service may be credited towards retirement benefits under certain conditions To be creditable as compensation under the Railroad Retirement Act service in the US Armed Forces must be preceded by railroad service in the same or preceding calendar year With the excepshytions noted the employee must also have entered active military service when the United States was at war or in a state of national emergency or have served in the Armed Forces involuntarily

If military service began during a war or national emergency period any active duty service the employee was required to continue in beyond the end of the war or national emergency is creditable except that volshyuntary service extending beyond September 14 1978 is not creditable

Railroad workers who voluntarily served in the Armed Forces beshytween June 15 1948 and December 15 1950 when there was no deshyclared national state of emergency in force can be given railroad retireshyment credit for their military service if they performed railroad service in the year they entered or the year before they entered military service and if they returned to rail service in the year their military service ended or in the following year and had no intervening nonrailroad employment

war and national emergency periods

August 2 1990 to date as yet undetermined December 16 1950 to September 14 1978 September 8 1939 to June 14 1948

26 2018 INFORMATIONAL CONFERENCE HANDBOOK

SERVICE AND EARNINGS RECORDS

The RRB maintains a record of all covered railroad service and creditable earnshyings after 1936 The information is recorded under the employeersquos social security account number used by the employer to report service and compensation to the RRB

Each year employees in the industry receive a Certificate of Service Months and Compensation (Form BA-6) from the RRB This statement is important beshycause it provides both a current and cumulative record of an employeersquos railroad service and compensation It inshycludes deemed service months

Each year employees in the industry separation allowances and sevshyreceive a Certificate of Service Months erance payments as well as mis- and Compensation (Form BA-6) fromcellaneous compensation such the RRB which provides both a current

as taxable sickness payments and cumulative record of an employeersquos It also includes the cumulative railroad service and compensationamounts of railroad retirement payroll taxes paid by the employshyee over and above social security equivalent payroll taxes and reflects creditable military service if the service has previously been reported to the RRB Employees are encouraged to carefully review Form BA-6 for accuracy upon receipt

Railroad employees who have already established a Benefit Online Services account at RRBgov can view their individual railroad retirement records of service months and compensation through a feature called View Service amp Compensation History Though this alternative record does not replace Form BA-6 it does make similar information available online This information is only available to employshyees with RRB online accounts

If an employee disagrees with the information shown on Form BA-6 he or she should notify the RRB as early as possible The law limits the period during which

PROVISIONS OF THE RAILROAD RETIREMENT ACT 27 corrections can be made to 4 years When reporting an inaccuracy on Form BA-6 all correspondence must include the employeersquos social security number Employees can mail this information to any RRB field office or to RRB headquarters at

Protest Unit - CESC US Railroad Retirement Board

844 North Rush Street Chicago IL 60611-1275

AGE AND SERVICE DISABILITY AND SUPPLEMENTAL ANNUITIES

The basic requirement for a regular employee annuity is 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if performed after 1995 Benefits then become payable after the employee meets certain other requirements which depend in turn on the type of annuity payable

An AGE AND SERVICE ANNUITY can be paid to

Employees with 30 or more years of creditable service They are eligible for regular annuities based on age and service the first full month they are age 60 Early retirement reductions are applied if the employee first became eligible for a 6030 annuity July 1 1984 or later and retired at ages 60 or 61 before 2002

Employees with 10-29 years of creditable service or 5-9 years if at least 5 years were after 1995 They are eligible for regular annuities based on age and service the first full month they are age 62 Early retirement annuity reductions are applied to annuities awarded before the employeersquos full retirement age as explained on the next page

EMPLOYEE AND SPOUSE ANNUITIES

28 2018 INFORMATIONAL CONFERENCE HANDBOOK

Full retirement age means the age at which an employee can receive full benefits with no reduction for early retirement This ranges from age 65 to age 67 depending upon the year of birth Reduced annuities are still payable at age 62 to those with less than 30 years of service but the maximum reduction is gradually rising to 30 percent from 20 percent by the year 2022 as a result of social security legislation enacted in 1983 Part of the annuity (tier II) is not reduced beyond 20 percent if the employee had any creditable railroad service before August 12 1983 Railroad retirement tiers are explained on pages 33 and 35

The annuities of employees reshytiring after the first full month they are age 60 (for those with 30 years of service) can begin with the first day they are eligible with up to 6 monthsrsquo retroactivity The annuities of employees retiring at or after age 62 with an age reduction (for those with less than 30 years of service) can begin with the first day of the month in which the application is filed

An annuity based on age cannot be paid until the employee stops railroad emshyployment files an application and gives up any rights to return to work for a railshyroad employer

IF EMPLOYEE WAS BORN

FULL RETIREMENT AGE IS

1937 or earlier 65

1938 65 and 2 months

1939 65 and 4 months

1940 65 and 6 months

1941 65 and 8 months

1942 65 and 10 months

1943 through 1954 66 1955 66 and 2 months

1956 66 and 4 months

1957 66 and 6 months

1958 66 and 8 months

1959 66 and 10 months

1960 or later 67

A person attains a given age the day before his or her birthday Consequently someone born on January 1 is considered to have attained his or her given age on December 31 of the previous year

Table 1--Determining Full Retirement Age

PROVISIONS OF THE RAILROAD RETIREMENT ACT 29

A DISABILITY ANNUITY can be paid for

Total disability at any age if an employee is disabled for all regular work and has at least 10 years (120 months) of creditable railroad service Employees with 5-9 years of creditable railroad service if at least 5 years were after 1995 may qualify for tier I only (as defined on page 33) before retirement age on the basis of total disability if they also meet certain social security earnings requirements An age reshyduced tier II amount would be payable at age 62

TOTAL DISABILITY

means a physical or mental disability that prevents any regular employment

Occupational disability at age 60OCCUPATIONAL DISABILITY if an employee has at least 10 years

(120 months) of railroad service or at means an employee is disabled for his or any age if the employee has at leasther regular railroad occupation (generally

the job he or she worked the longest in the 20 years (240 months) of service last 5 years) and the condition is expected when the employee is disabled for his to last at least 12 months or longer or her regular railroad occupation

A current connection with the rail-road industry is also required for an annuity based on occupational rather than total disability

A 5-month waiting period beginning with the month after the month of the onset of disability is required before any disability annuity payments can begin

An employee can be in compensated service while filing a disability annuity application as long as the compensated service is not active service and terminates within 90 days from the date of filing However in order for a supplemental annuity to be paid by the RRB or for an eligible spouse to begin receiving annuity payshyments a disabled annuitant under full retirement age must relinquish employment rights

A SUPPLEMENTAL ANNUITY can be paid at

Age 60 if the employee has at least 30 years of creditable railroad service

Age 65 if the employee has 25-29 years of railroad service

30 2018 INFORMATIONAL CONFERENCE HANDBOOK

In addition to the service requirements a current connection with the railroad industry is required for all supplemental annuities An employee must also be reshyceiving a railroad retirement age and service or disability annuity before a suppleshymental annuity can be paid Eligibility is further limited to employees who had at least one month of creditable rail service before October 1981

CURRENT CONNECTION

An employee who worked for a railroad in at least 12 months in the Once a current connection 30 months immediately preceding is established at the time the

railroad retirement annuity be-the month his or her railroad retire- gins an employee never loses ment annuity begins will meet the it no matter what kind of work current connection requirement for is performed thereafter a supplemental annuity occupationshyal disability annuity or the survivor benefits described later in this chapter (If the employee died before retirement railroad service in at least 12 months in the 30 months before the month of death will meet the current connection requirement for the purpose of paying survivor benefits)

If an employee does not qualify for a current connection on this basis but has 12 months of service in an earlier 30-month period he or she may still meet the current connection requirement This alternative generally applies if the employee did not have any regular employment outside the railroad industry after the end of the last 30-month period which included 12 months of railroad service and before the month the annuity begins or the month of death Full or part-time work for a nonrailroad employer in the interval between the end of the last 30-month period inshycluding 12 months of railroad service and the month an employeersquos annuity begins or the month of death if earlier can break a current connection

Self-employment in an unincorporated business will not break a current conshynection however self-employment can break a current connection if the business is incorporated

Working for certain US Government agencies--Department of Transportashytion National Transportation Safety Board Surface Transportation Board Transshy

PROVISIONS OF THE RAILROAD RETIREMENT ACT 31

portation Security Administration National Mediation Board Railroad Retirement Board--will not break a current connection State employment with the Alaska Railshyroad as long as that railroad remains an entity of the State of Alaska will not break a current connection Also railroad service in Canada for a Canadian railroad will neither break nor preserve a current connection

A current connection can also be maintained for purposes of supplemental and survivor annuities but not for an occupational disability annuity if the employee completed 25 years of railroad service was involuntarily terminated without fault from his or her last job in the railroad industry and did not thereafter decline an offer of employment in the same class or craft in the railroad industry regardless of the distance to the new position A termination of railroad service is considered volshyuntary unless there was no choice available to the individual to remain in service Generally where an employee has no option to remain in the service of his or her railroad employer the termination of the employment is considered involuntary reshygardless of whether the employee does or does not receive a separation allowance However each case is decided by the RRB on an individual basis This exception to the normal current connection requirements became effective October 1 1981 but only for employees still living on that date who left the rail industry on or after October 1 1975 or who were on leave of absence on furlough or absent due to injury on October 1 1975

SPOUSE ANNUITIES

The age requirements for a spouse annuity depend on the employeersquos bull age and date of retirement bull years of railroad service

Retired employee age 60 with 30 years of service

If a retired employee with 30 years of service is age 60 the employeersquos spouse is also eligible for an annuity the first full month the spouse is age 60 Certain early retirement reductions are applied if

the employee first became eligible for a 6030 annuity July 1 1984 or later and reshytired at ages 60 or 61 before 2002 If the employee was awarded a disability annuity has attained age 60 and has 30 years of service the spouse can receive an unreduced

32 2018 INFORMATIONAL CONFERENCE HANDBOOK

annuity the first full month she or he is age 60 regardless of whether the employee annuity began before or after 2002 as long as the spousersquos annuity beginning date is after 2001

If a retired employee with less than 30 years of service is age 62 the employeersquos spouse is also elishygible for an annuity the first full month the spouse is age 62 Early retirement reductions are applied to the spouse annuity if the spouse retires prior to her or his full retirement age Full reshytirement age for a spouse is gradually rising to age 67 just as for an employee depending on the year of birth Reduced benefits are still payable at age 62 but the maximum reduction will be 35 percent rather than 25 percent by the year 2022 The tier II portion of a spouse annuity (as defined on page 35) is not reduced beyond 25 percent if the employee had any creditable railroad service before August 12 1983

A spouse of an employee receiving an age and service annuity (or a spouse of a disability anshynuitant who is otherwise eligible for an age and service annuity) is eligible for a spouse annuity at any age if he or she is caring for the employshy

eersquos unmarried child under age 18 The spouse is also eligible if caring for the emshyployees disabled child of any age who became disabled before age 22

The employee must have been married to the spouse for at least 1 year unless the spouse is the natural parent of their child or the spouse was eligible or potentialshyly eligible for a railroad retirement widow(er)rsquos parentrsquos or disabled childrsquos annushyity in the month before marrying the employee or the spouse was previously marshyried to the employee and received a spouse annuity A spouse of an employee is not eligible for railroad retirement benefits based solely on the spouses own disability

An annuity may also be payable to the dishyvorced wife or husband of a retired employee if their marriage lasted for a period of at least 10 years immediately before the date the divorce beshycame final both have attained age 62 for a full month and the divorced spouse is not currently married The amount of a divorced spousersquos annuity is in effect equal to what social security would pay in the same situation and therefore less

Retired employee age 62 with less than 30 years of service

Spouse of an age and service employee caring for the em-ployeersquos unmarried child

Divorced spouse if marriage lasted for at least 10 years

PROVISIONS OF THE RAILROAD RETIREMENT ACT 33

than the amount of the spouse annuity otherwise payable (tier I only) A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for a period of not less than 2 years the employee and forshymer spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings Also a court-ordered partition payment may be paid even if the employee is not entitled to an annuity provided that the employee has 10 years of railroad service or 5 years after 1995 and both the employee and former spouse are 62

ANNUITY ESTIMATES

Railroad employees with RRB online accounts can get estimates of future anshynuities for themselves and their spouses via the Benefit Online Services section of RRBgov Instructions for establishing an online account are available by clicking on the link for requesting a Password Request Code (PRC) in that same section The estimates are based on the service and earnings records maintained by the RRB and show the earliest date the employee can receive a full annuity and if applicable the earliest date he or she can receive a reduced annuity Employees can also contact any RRB field office to request annuity estimates with approximate figures Estishymates can only be furnished for employees with at least 10 years of railroad service or 5 years of service after 1995 it is not possible to provide a precise amount if the employee is not currently eligible

TWO-TIER ANNUITIES AND DUAL BENEFITS

Regular railroad retirement annuities are calculated under a two-tier formula The annuity formula components for employees and spouses are described later in this chapter

The FIRST TIER is based on railroad retirement credits and any social security credits an employee has acquired The amount of the first tier is calculated using social security formulas but with railroad retirement age and service requirements

(Text continues on page 35)

34 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 2--Fiscal year 2017 annuity awards to 30-year employees retiring before full retirement age

AVERAGE AWARD

AVERAGE YEARS OF SERVICE

Employee $4079 372

Employee and spouse 5701 374

Note--For employees with at least 25 years of service and a current conshynection a supplemental annuity may be payable The supplemental annuity amount is $23 plus $4 for each year of service over 25 years up to a maxshyimum of $43 for employees with 30 or more years of service Figures in the tables on this page include supplemental annuity amounts

Table 3--Fiscal year 2017 annuity awards based on service averaging less than 30 years

AVERAGE AVERAGE YEARS AWARD OF SERVICE

Employee full retirement age or over $2557 213

Employee full retirement age or over and spouse 3631 234

Employee under full retirement age with less than 30 years of service 1845 159

Employee under full retirement age with less than 30 years of service and spouse 2549 162

Employee retiring because of disability 2726 209

PROVISIONS OF THE RAILROAD RETIREMENT ACT 35

The SECOND TIER is based on railroad retirement credits only and may be compared to the retirement benefits paid over and above social security benefits to workers in other industries

An additional amount may also be payable as part of the regular annuity if an employee qualified for both railroad retirement and social security benefits before 1975 and met certain vesting requirements

Employees with Railroad Retirement and Social Security Benefits If a retired or disabled railroad retirement annuitant is also awarded social secushy

rity benefits the Social Security Administration determines the amount of the social security benefit due The RRB then issues a combined monthly benefit payment after the railroad retirement annuity (tier I only) has been reduced by the amount of the social security benefit

The tier I portion of an employee annuity is based on his or her combined railshyroad retirement and social security credits figured under social security formulas and approximates what social security would pay if railroad work were covered by that system It is reduced by the amount of any actual social security benefit paid on the basis of the employeersquos nonrailroad employment in order to prevent a duplicashytion of benefits based on social security-covered earnings The tier I amount is also reduced in the event a social security benefit is payable to the employee on the basis of another personrsquos earnings This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time An annuitant is required to advise the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase (other than for a cost-of-living increase)

If an employee qualified for dual benefits before 1975 and met certain vesting requirements he or she can receive an additional annuity amount which offsets in part the dual benefit reduction This additional amount which reflects the dual benefits payable prior to 1975 is called the vested dual benefit payment The vested dual benefit cannot be paid prior to the date the employee could begin to receive a social security benefit if he or she were to file for such a benefit

36 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employees who worked for a railroad in 1974 and retired after 1974 are conshysidered vested if on December 31 1974 they had both at least 10 years of railroad service and sufficient quarters of coverage to qualify for a social security retireshyment benefit at age 62 Employees qualified on this basis are eligible for vested dual benefit amounts computed on their railroad and social security credits through December 31 1974

Employees who did not work for a railroad in 1974 but had 25 Limitations on or more years of railroad service Vested Dual Benefitsbefore 1975 or employees with 10 years of railroad service before Vested dual benefit payments are 1975 who had either a current conshy funded by annual appropriations from

general US Treasury revenues These nection with the railroad industry appropriations account for less than one on December 31 1974 or at the percent of total financing sources for the

time their annuities began are also railroad retirement system considered vested under the same Payment of vested dual benefits is deshyconditions as persons who were pendent on the time and amount of such

appropriations If the appropriation in a railroad employees in 1974 fiscal year is for less than the estimated

Other employees who comshy total vested dual benefit payments indishyvidual payments must be reduced pleted 10 or more years of railroad

service before 1975 but left the inshydustry before 1974 are considered vested only if they had sufficient social security quarters of coverage to qualify for a social security retirement benefit as of the end of the year before 1974 in which they left the railroad industry Their vested dual benefit amount is based only on credits acquired through their last year of pre-1975 railroad service instead of through December 31 1974

Employees who do not qualify for a vested dual benefit may be eligible for a refund of any excess social security taxes they paid (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 37

Employees with Public Non-Profit or Foreign Pensions For employees first eligible for a railroad retirement annuity and a Federal

State or local government pension after 1985 there may be a reduction in the tier I amount for receipt of a public pension based in part or in whole on employment not covered by social security or railroad retirement after 1956 This may also apshyply to certain other payments not covered by railroad retirement or social security such as payments from a nonprofit organization a foreign government or a foreign employer This does not include military service pensions payments by the Departshyment of Veterans Affairs or certain benefits payable by a foreign government as a result of a totalization agreement between that government and the United States

Workersrsquo Compensation If an employee is receiving a disability annuity the tier I portion may under

certain circumstances be reduced for receipt of workersrsquo compensation or public disability benefits

If an annuitant becomes entitled to any pensions or benefits as described above the RRB must be notified immediately

SPOUSES WITH DUAL BENEFITS

Social Security Benefits The tier I portion of a spouse annuity is reduced for any social security entitleshy

ment regardless of whether the social security benefit is based on the spousersquos own earnings the employeersquos earnings or the earnings of another person This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time

Public Pensions The tier I portion of a spouse annuity may also be reduced for receipt of any

Federal State or local government pension separately payable to the spouse based

38 2018 INFORMATIONAL CONFERENCE HANDBOOK

on the spousersquos own earnings The reduction generally does not apply if the emshyployment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For spouses subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

Employee Annuity If both individuals in a marriage are railroad employees and both started railroad

employment after 1974 the amount of any spouse or divorced spouse annuity is reshyduced by the amount of the employee annuity to which the spouse is also entitled

If either one had some railroad service before 1975 the spouse tier I amount is reduced by the amount of the railroad employee tier I to which the spouse is entitled and that initial reduction is restored in the spouse tier II amount The spouse tier I amount cannot be reduced below zero

MINIMUM GUARANTY

Under a special minimum guaranty provision railroad families will not reshyceive less in monthly benefits than they would have if railroad earnings were covered by social security rather than railroad retirement laws This guaranty is intended to cover situations in which one or more members of a family would otherwise be eligible for a type of social security benefit which is not provided unshyder the Railroad Retirement Act

For example social security provides childrenrsquos benefits when an employee is totally disabled retired or deceased The Railroad Retirement Act only provides childrenrsquos benefits if the employee is deceased Therefore if a retired rail employee has children who would otherwise be eligible for a benefit under social security the employeersquos annuity would be increased to reflect what social security would pay the family unless the annuity is already more than that amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 39

COST-OF-LIVING INCREASES IN EMPLOYEE AND SPOUSE RETIREMENT BENEFITS

After retirement the tier I portions of both employee and spouse annuities are generally increased for higher living costs at the same time and by the same pershycentage as social security benefits These increases effective December 1 and inshycluded in the January payment are based on the rise in the Consumer Price Index from the third quarter of the last year a cost-of-living adjustment became effective to the corresponding period of the current year Generally if the Index increases by five percent for example the tier I portion increases by five percent Under certain circumstances the increase can be based on average national wage increases rather than price increases

If an annuitant is receiving both railroad retirement and social security benefits the increased tier I portion is reduced by the increased social security benefit

The tier II portions of retired employee and spouse annuities are normally inshycreased by 325 percent of the increase in the Consumer Price Index

Tier II cost-of-living increases are generally payable at the same time as tier I cost-of-living increases Vested dual benefit payments and supplemental annuities are not increased by these cost-of-living adjustments

WORKING AFTER RETIREMENT

Neither a regular annuity a supplemental annuity nor a spouse annuity is payshyable for any month in which a retired employee regardless of age works for an employer covered under the Railroad Retirement Act including labor organizashytions However service for less than $25 a month to a local lodge will not prevent payment of the annuity for that month Regardless of the amount of salary work by a local lodge or division secretary collecting insurance premiums is considered railroad work and therefore no annuity is payable for any month in which such activity occurs

40 2018 INFORMATIONAL CONFERENCE HANDBOOK

Retired employees and spouses who work for their last pre-retirement nonrailshyroad employer are subject to an earnings deduction Last pre-retirement nonrailroad employment is employment that continues through the annuity beginning date or ended within 6 months of the annuity beginning date Such employment will reduce tier II benefits and supplemental annuity payments which are not otherwise subject to earnings deductions by $1 for each $2 of earnings received subject to a maxishymum reduction of 50 percent These reductions continue after full retirement age Work that begins on the same day as the annuity beginning date is not last pre-reshytirement nonrailroad employment

Retired employees and spouses who have not yet attained full social security retirement age which ranges from age 65 for those born before 1938 to age 67 for those born in 1960 or later may also be subject to additional earnings deductions for any earnings in or outside the rail industry that exceed certain exempt amounts The tier I and vested dual benefits of these employee and spouse annuities are subshyject to deductions if earnings exceed the exempt amounts applicable to social secushyrity beneficiaries Prior to the calendar year in which full social security retirement age is attained the deduction is $1 in benefits for every $2 of annual earnings exshyceeding an exempt amount ($17040 in 2018)

If the employee or spouse has a tier I reduction for social security benefits the tier I benefit is not reduced for excess earnings

In the first year in which an employee subject to these earnings deductions is both entitled to an annuity and has a non-work month a full tier I and vested dual benefit can be paid for those months in which the employee had low earnings or did not have substantial self-employment no matter what total earnings for the year were A non-work month is one in which the employee neither earns over 112th of the annual exempt amount nor has substantial self-employment Non-work months can be claimed in only one calendar year which need not necessarily be the first year of entitlement

In the calendar year in which an individual attains full social security retirement age deductions of $1 are made in tier I and vested dual benefits for every $3 earned in excess of an exempt amount ($45360 in 2018) but only counting those earnings in the months prior to the month full retirement age is attained These tier I and

PROVISIONS OF THE RAILROAD RETIREMENT ACT 41

vested dual benefit deductions stop effective with the month full retirement age is attained

Earnings received for services rendered plus any net earnings from self-emshyployment are considered when assessing deductions for earnings Interest divishydends certain rental income or income from some stocks bonds or other investshyments are not generally considered earnings for this purpose

Annuitants under full retirement age who work after retirement and expect that their earnings for a year will be more than the annual exempt amount must promptshyly notify the RRB and furnish an estimate of their expected earnings in order to prevent an overpayment and penalties They should also notify the RRB if their original estimate changes significantly Annuitants should report final earnings by April 15 of the following year

Retired employees and spouses who return to work for a railroad or for their last pre-retirement nonrailroad employer must notify the RRB regardless of earnings or age

A spouse benefit is subject to reductions not only for the spousersquos earnings but also for the earnings of the employee regardless of whether the earnings are from service for the last pre-retirement nonrailroad employer or other post-retirement employment

A spouse annuity is not payable for any month in which the employeersquos annuity is not payable or for any month in which the spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse annuity is not payable for any month in which the divorced spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for at least 2 years the employee and former spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings

Disability Work Restrictions If an annuity is based on disability there

A disability annuitant must report anyearnings

42 2018 INFORMATIONAL CONFERENCE HANDBOOK

are certain work restrictions that can affect payment depending on the amount of earnings The annuity is not payable for any month in which the disabled employee annuitant works for an employer covered under the Railroad Retirement Act The annuity is not payable for any month in 2018 in which the disabled employee anshynuitant earns over $920 in any employment or net self-employment exclusive of disability-related work expenses Withheld payments will be restored if earnings for the year are less than $11500 after deduction of disability-related work expenses Failure to report such earnings could involve a significant penalty charge

These disability work restrictions cease upon a disabled employee annuitantrsquos attainment of his or her full retirement age This transition is effective no earlier than full retirement age even if the annuitant had 30 years of service Earnings deshyductions continue to apply to those working for their last pre-retirement nonrailroad employer

If a disabled employee annuitant works before his or her full retirement age this may also raise a question about the possibility of that individualrsquos recovery from disability regardless of the amount of earnings Consequently any work activity must be reported promptly to avoid overpayments which are recoverable by the RRB and may also include significant penalties

WHEN ANNUITIES STOP

Payment of any annuity stops upon the annuitantrsquos death and the annuity is not payable for any day in the month of death

A disability annuity stops after the employee recovers from the disability it can be reinstated if the disabling condition recurs

A spouse annuity stops if the employeersquos annuity terminates or the spouse anshynuity was based on caring for a child and the child is no longer under age 18 or disabled or the child is no longer in the spousersquos care However the spouse annuity may continue if she or he is qualified without the child or it can resume when the spouse attains a qualifying age

While a divorce ends eligibility for a spouse annuity a divorced spouse may

PROVISIONS OF THE RAILROAD RETIREMENT ACT 43 under conditions described previously qualify for a divorced spousersquos annuity

A divorced spousersquos annuity stops upon remarriage or upon entitlement to a social security benefit based on her or his own earnings if the unreduced social seshycurity benefit is equal to or greater than one-half of the employeersquos unreduced tier I amount A divorced spousersquos annuity may be reduced or stopped if the divorced spouse is also entitled to a railroad retirement annuity

Annuities are payable to surviving widow(er)s children and certain other deshypendents Lump-sum benefits are payable after the death of a railroad employee only if there are no qualified survivors of the employee immediately eligible for monthly annuities With the exception of a residual lump-sum death benefit elishygibility for survivor benefits depends on whether or not the employee was insured under the Railroad Retirement Act at the time of death

An employee is insured if he or she has at least 10 years (120 months) of railshyroad service or 5 years (60 months) performed after 1995 and a current connection with the railroad industry as of the month the annuity begins or the month of death whichever occurs first The current connection requirement is described earlier in this chapter

It is important to notify the Railroad Retirement Board promptly if one of the above changes occurs Failure to report can result in an overpayment which the RRB will take action to recover sometimes with interest or penalshyties Failure to report changes promptly or making a false statement can also result in a fine or imprisonment

SURVIVOR BENEFITS

survivor annuities are payable to

widow(er)s surviving divorced spouses remarried widow(er)s unmarried children parents

44 2018 INFORMATIONAL CONFERENCE HANDBOOK

If a deceased employee was not so insured jurisdiction of any survivor benefits payable is transferred to the Social Security Administration and any survivor benshyefits are paid by that agency instead of the RRB Regardless of which agency has jurisdiction the deceased employeersquos railroad retirement and social security credits will be combined for the purpose of benefit computations

WIDOWSrsquo AND WIDOWERSrsquo ANNUITIES

Widowsrsquo and widowersrsquo annuities are payable at

Age 60 age reductions are applied to annuities awarded before full retirement age The eligibility age for unreduced annuities is gradually rising from age 65 to age 67 depending on the year of birth

Ages 50-59 if the widow(er) is totally disabled and unable to work in any regushylar employment The disability must have begun within 7 years after the employeersquos death or within 7 years after the termination of an annuity based on caring for a child of the deceased employee In most cases a 5-month waiting period is required after the onset of disability before a disability annuity can begin

Any age if the widow(er) is caring for an unmarried child of the deceased employee under age 18 or a disabled child of any age who became disabled before age 22

Generally the widow(er) must have been married to the employee for at least 9 months prior to death unless she or he was the natural or adoptive parent of their child the employeersquos death was accidental or while on active duty in the US Armed Forces the widow(er) was potentially entitled to certain railroad retirement or social security benefits in the month before the month of marriage or the marshyriage was postponed due to State restrictions on the employees prior marriage and divorce due to mental incompetence or similar incapacity

Survivor annuities may also be payable to a surviving divorced spouse or re-married widow(er) Benefits are limited to the amount social security would pay and therefore are less than the amount of the survivor annuity otherwise payable

(Text continues on page 47)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 45

Table 4--Number and average amount of benefits awarded under the Railroad Retirement Act fiscal year 2017

AVERAGE TYPE OF BENEFIT NUMBER AMOUNT

MONTHLY BENEFITS

Full retirement age or over 1800 $2550

Less than full retirement age Unreduced 4900 4049 Reduced 2400 1845 Age retirements total 9100 3159

Disability retirements 1600 2723 Regular employee annuities total 10700 3095

Supplemental employee annuities1 5200 41

Unreduced spouse annuities 7300 1269

Reduced spouse annuities 2700 548

Divorced spouse annuities 700 669 Spouse and divorcedspouse annuities total 10800 1047

Aged widow(er)s 5500 2113

Disabled widow(er)s 100 1752

Widowed mothers and fathers 100 1806

Remarried widow(er)s 100 1189

Divorced widow(er)s 700 1209

Children 400 1368

Parents2 844 Survivor annuities total 6900 1948

Total3 33500

LUMP-SUM BENEFITS

Lumpshysum death payments 2500 $933

Residual payments2 1040

Total 2500

1 Averages are after courtshyordered partitions 2 Fewer than 50 3 Excludes partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Note--Detailed figures may not add to totals shown because of rounding

46 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 5--Number and average amount of monthly benefits under the Railroad Retirement Act in current payment status

on September 30 2017

TYPE OF BENEFIT NUMBER AVERAGE AMOUNT

Full retirement age or over Less than full retirement age Unreduced Reduced Age retirements total

Disability retirements1

Under full retirement age Full retirement age and over Regular employee annuities total Supplemental employee annuities2

Unreduced spouse annuities Reduced spouse annuities Divorced spouse annuities Spouse and divorcedspouse annuities total

Aged widow(er)s Disabled widow(er)s Widowed mothers and fathers

Remarried widow(er)s Divorced widow(er)s Children Parents3

Survivor annuities total Partition payments4

Total

21300

107400 61700 190300

46200 28000 264500

122100 96300 45500 5100

146900

87800 3500

600 3000 9700 8500 113200 1700

648300

$2131

3487 1621

2731

2401 2691 2669

42

1261

514

632

1008

1664

1326

1878

1071

1078

1078

907 1544

315

1 Full retirement age also known as normal retirement age is gradually increasing from age 65 to age 67 over a 22shyyear period For those born 121943shy111955 the normal retirement age is 66 Annuities to disability retirees at full retirement age and over are payable as age annuities 2 Averages are after courtshyordered partitions 3 Fewer than 50 4 Limited to partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Partition payments from employees on the rolls are included with the employees annuities Note--Detailed figures may not add to totals shown because of rounding

PROVISIONS OF THE RAILROAD RETIREMENT ACT 47

However a former spouse may be paid a court-ordered partition amount even after the employees death

A surviving divorced spouse may qualify if she or he was married to the emshyployee for a period of at least 10 years immediately before the date the divorce became final is unmarried or remarried under the conditions described in the next paragraph and is age 60 or older (50 if disabled) A surviving divorced spouse who is unmarried can qualify at any age if caring for the employeersquos child and the child is under age 16 or disabled in which case the 10-year marriage requirement does not apply

The portion of a survivor annuity equivalent to a social security benefit (tier I) may be paid to a widow(er) or surviving divorced spouse who remarries after age 60 or to a disabled widow(er) or disabled surviving divorced spouse who remarries after age 50 however remarriage prior to age 60 (or age 50 if disabled) would not prevent eligibility if such remarriage ends Such social security level benefits may also be paid to a younger widow(er) or surviving divorced spouse caring for the employeersquos child who is under age 16 or disabled if the remarriage is to a person entitled to railroad retirement or social security benefits or the remarriage ends

OTHER SURVIVOR ANNUITIES

Other survivor annuities are payable to

An unmarried child under age 18

An unmarried child age 18 in full-time attendance at an elementary or sec-ondary school or in approved homeschooling until the student attains age 19 or the end of the school term in progress when the student attains age 19 In most cases where a student attains age 19 during the school term benefits are limited to the 2 months following the month age 19 is attained These benefits will be terminated earlier if the student marries graduates or ceases full-time attendance

An unmarried disabled child over age 18 if the child became totally disabled before age 22

An unmarried dependent grandchild meeting any of the requirements deshyscribed above for a child if both the grandchildrsquos parents are deceased or disabled

48 2018 INFORMATIONAL CONFERENCE HANDBOOK

A parent at age 60 who was dependent on the employee for at least half of the parentrsquos support If the employee was also survived by a widow(er) surviving dishyvorced spouse or child who could ever qualify for an annuity the parentrsquos annuity is limited to the amount that social security would pay (tier I)

SURVIVOR ANNUITY ESTIMATES

Survivors can call the agency toll-free (1-877-772-5772) to speak with a field service representative and request an annuity estimate Active or retired employees who are concerned about the amount of benefits which would be payable to their survivors may also receive estimates from field service staff Pre-retirement counshyseling is also available by appointment at any RRB field office

The following information may be helpful in providing an idea of the amount of potential survivor benefits

The average annuity awarded to widow(er)s in fiscal year 2017 excluding reshymarried widow(er)s and surviving divorced spouses was $2103 a month On the average children received $1368 a month while total family benefits for widshyow(er)s with children averaged $4189 a month The average annuity awarded to remarried widow(er)s or surviving divorced spouses in fiscal year 2017 was $1206 a month

SURVIVOR ANNUITY TIERS

Survivor annuities like retirement annuities consist of tier I and tier II components

Based on deceased employeersquos combined railroad retirement and TIER I social security credits and generally equivalent to the amount

that would be payable under social security

Percentages of deceased employeersquos tier II amount (similar to TIER II a private pension tier II benefit is based on employees railroad

earnings and service months)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 49

Survivor annuity amounts may also be determined under certain minimum proshyvisions which guarantee that a widow(er)rsquos annuity will be at least equal to the two-tier benefit the deceased employee would have received at the time of the award of the widow(er)rsquos annuity minus certain reductions including those for age and receipt of social security benefits and no less than the spouse annuity she or he was receiving just prior to the employeersquos death

SURVIVORS WITH DUAL BENEFITS

Social Security Benefits The tier I portion is reduced by the amount of any social security benefits reshy

ceived by a survivor annuitant whether the social security benefits are based on the survivorrsquos own earnings or those of another individual This reduction follows the principles of social security law which in effect limit payment to the higher of any two or more benefits payable to an individual at one time When both railshyroad retirement annuities and social security benefits are payable they are genershyally combined into a single payment issued through the RRB A survivor annuitant must notify the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase other than for a cost-of-living increase

Public Pensions The tier I portion of a widow(er)rsquos annuity may be reduced for receipt of any

Federal State or local government pension based on the widow(er)rsquos own earnings The reduction generally does not apply if the employment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For those subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

50 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employee Annuity If a widow(er) is also entitled to a railroad retirement employee annuity and

both the widow(er) and the deceased employee started railroad employment after 1974 the survivor annuity (tier I and tier II) payable to the widow(er) is reduced by the full amount of the widow(er)s own employee annuity

If a widow or dependent widower is also a railroad employee annuitant and either the widow(er) or the deceased employee had 120 months of railroad service before 1975 the tier I reduction may be partially restored in the survivor tier II amount

If either the deceased employee or the survivor annuitant had some railroad service before 1975 but less than 10 years of service the widow(er)s own employshyee annuity and the tier II portion of the survivor annuity would be payable to the widow(er) The tier I portion of the survivor annuity would be payable only to the extent that it exceeds the tier I portion of the widow(er)s own employee annuity

COST-OF-LIVING INCREASES IN SURVIVOR ANNUITIES

Cost-of-living increases effective December 1 and included in the January payshyment are made on the basis of increases in national prices or in some circumstancshyes average national wages and calculated the same way as cost-of-living increases in employee and spouse annuities

However in the case of widow(er)srsquo annuities computed on the basis of the inishytial minimum amount provided under 2001 legislation the monthly payment will not increase until the amount payable under previous law plus subsequent cost-ofshyliving increases is higher than the initial minimum amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 51

A survivor annuity is not payable for any month the survivor works for an employer covered under the Railshyroad Retirement Act regardless of the survivorrsquos age

Survivors who are receiving social security benefits have their railroad retirement annuity and social secushyrity benefit combined for earnings limitations purposes Prior to the calshyendar year in which full retirement age is attained there is a deduction of $1 in benefits for every $2 earned over an exempt amount ($17040 in 2018) The deduction is $1 for every $3 earned over an exempt amount ($45360 in 2018) for the months in the calendar year in which the indishyvidual attains full retirement age up

to the month of attainment Work deductions stop effective with the month full retirement age is attained In the first year in which a survivor is both entitled to an annuity and has a nonshywork month a full annuity can be paid for those months in which the survivor had low earnings or did not have substantial selfshyemployshyment no matter what total earnings for the year were

These earnings restrictions do not apply to disabled widow(er)s unshyder age 60 or to disabled children However any work or earnings by a disability annuitant must be reportshyed and are reviewed to determine whether they indicate recovery from the disability

WORK AND EARNINGS What are the limitations

As work and earnings may affect the payment of an annuity they must be reported promptly to the RRB in orderto prevent potential overpayments

52 2018 INFORMATIONAL CONFERENCE HANDBOOK

WHEN SURVIVOR PAYMENTS STOP

All survivor payments stop upon death no annuity is payable for the month of death

A widow(er)rsquos annuity will be reduced upon remarriage and in some cases payshyment will be prevented A widow(er)rsquos surviving divorced spousersquos and remarried widow(er)rsquos annuity could also end upon entitlement to another survivor or spouse annuity under the Railroad Retirement Act which is greater than the widow(er)rsquos annuity

A surviving divorced spousersquos or remarried widow(er)rsquos annuity could stop when entitled to a social security benefit which equals or exceeds the deceased emshyployeersquos basic tier I amount and reduces the annuity amount to zero

A widow(er)rsquos remarried widow(er)s or surviving divorced spousersquos annuity which is based on a child in care will end if the child is no longer in the personrsquos care the childrsquos eligibility ceases or in most situations remarriage occurs Providshyed the child in care is not disabled this type of annuity also ends when the child reaches age 18 (for widow(er)s) or age 16 (for remarried widow(er)s and surviving divorced spouses)

A childrsquos or grandchildrsquos annuity will stop if he or she marries reaches age 18 or recovers from the disability upon which his or her annuity was based If the child is 18 and a full-time elementary or high school student the annuity stops when full-time attendance ceases at graduation or upon attainment of age 19 In most cases when a student attains age 19 during the school term benefits are extended to the 2 months following the month age 19 is attained

An annuity will stop if it was based on disability and the beneficiary recovers from the disability before age 60 A disability annuity can be reinstated if the disshyability recurs within 7 years and the widow(er) is still under age 60

A parentrsquos survivor annuity may stop upon remarriage in certain cases a remarshyried parent is entitled to a tier I benefit

Any of the above occurrences must be reported promptly to the RRB in order to prevent an overpayment

PROVISIONS OF THE RAILROAD RETIREMENT ACT 53

LUMP-SUM DEATH BENEFITS

A lump-sum death benefit is payable to certain survivors of an employee with 10 or more years of railroad service or less than 10 years if at least 5 years were after 1995 and a current connection with the railroad indusshytry if there is no survivor immedishyately eligible for a monthly annuity

A lump-sum death benefit may be payable if there is no survivor immediatelyeligible for monthly bene-fits

upon the employeersquos death

If the employee did not have 10 years of service before 1975 the lump sum is limited to $255 and is payable only to the widow(er) living in the same household as the employee at the time of the employeersquos death

If the employee had less than 10 years of service but had 5 years after 1995 he or she must have met social securityrsquos insured status requirements for the lump sum to be payable

If the employee had 10 years of service before 1975 the lump sum is payable to the living-with widow(er) If there is no such widow(er) the lump sum may be paid to the funeral home or the payer of the funeral expenses These lump sums averaged $1010 in fiscal year 2017

If a widow(er) is eligible for monthly benefits at the time of the employeersquos death but the widow(er) had excess earnings deductions which prevented annuity payments or for any other reason did not receive monthly benefits in the 12-month period beginning with the month of the employeersquos death totaling at least as much as the lump sum the difference between the lump-sum benefit and monthly benefits actually paid if any is payable in the form of a deferred lump-sum benefit

The average for all types of lump sums was $933 in fiscal year 2017

The railroad retirement system also provides under certain conditions a resid-ual lump-sum death benefit which ensures that a railroad family receives at least as much in benefits as the employee paid in railroad retirement taxes before 1975 This benefit is in effect a refund of an employeersquos pre-1975 railroad retirement taxes

54 2018 INFORMATIONAL CONFERENCE HANDBOOK

after subtraction of any benefits previously paid on the basis of the employeersquos sershyvice This benefit is seldom payable

APPLYING FOR AN ANNUITY

Applications for railroad retirement or survivor benefits are generally filed at one of the RRBrsquos field offices with a traveling RRB representative at a customer outreach program service location or by telephone and mail The RRB accepts applications up to 3 months in advance of an annuity beginning date which allows the agency to complete the processing of most new claims by a personrsquos retirement date An employee can be in compensated service while filing a disability applishycation provided that the compensated service is not active service and terminates within 90 days from the date of filing When an employee files a disability applishycation while still in compensated service it will be necessary for the employee to provide a specific ending date of the compensation Compensated service includes not only compensation with respect to active service performed by an employee for an employer but also includes pay for time lost wage continuation payments cershytain employee protection payments and any other payment for which the employee will receive additional creditable service

Persons applying for railroad retirement benefits will be required to enroll in either the Direct Deposit program which electronically transfers payments into an individualrsquos checking or savings account or the US Department of the Treasuryrsquos Direct Express program which electronically transfers Federal payments to an inshydividualrsquos Direct Express-issued Debit MasterCardreg Enrollment waivers are availshyable only under very limited conditions

RETIREMENT AND SURVIVOR INFORMATION

Retroactivity of a retirement annuity application is limited to 1 year for disability annuities and 6 months for full age annuities There is generally no retroactivity for reduced age annuities

PROVISIONS OF THE RAILROAD RETIREMENT ACT 55

Applicants for railroad retirement-survivor benefits can check with an RRB field office as to when they can expect their first payment Customer service stanshydards and progress reports are available at RRBgov and in field offices

To expedite filing applicants should contact an RRB field office to schedule a pre-retirement consultation with field staff who will review benefit requirements and answer questions Certain documents are required when filing a railroad retireshyment annuity application including

For employees and spouses

bull Proof of an employeersquos age

bull Proof of any military service

bull Proof of marriage if the spouse is eligible or will shortly become eligible for a spouse annuity A divorced spouse must furnish proof of divorce from the employee

bull Proof of the spousersquos or divorced spousersquos age

bull Proof of a childrsquos relationship and age if the spouse is applying for an annuity based on caring for the employeersquos child

bull Information about any public service pension for which the applicant qualifies

bull Banking information for Direct Deposit of benefit payments (needed at time application is filed)

A photocopy of a record is not accepted as an official document To avoid a delay in application processing any proof submitted must be an orig-inal or certified copy

56 2018 INFORMATIONAL CONFERENCE HANDBOOK

The best proof of age is a certified copy of a civil or church document recordshyed at or close to the time of birth The best proof of marriage is a certified copy of the public or church record or the original marriage certificate A divorced spouse would be expected to furnish a certified copy of the final divorce decree Proof of military service may be a certificate of discharge or any official military record that shows the dates of service

Employees are encouraged to file proofs of age and especially of any military service well in advance of retirement in order to expedite the annuity application process and avoid delays resulting from inadequate proofs

Applicants for disability annuities are required to submit supporting medical inshyformation and should have as much medical documentation and information availshyable as possible at the time of filing They are sometimes asked to take a special medical examination given by a doctor designated by the RRB

An annuity is effective as of the first full month throughout which the employee andor spouse is age 60 with 30 years of service or age 62 in the case of reduced annuities with less than 30 years of service An annuity is effective the first day of the month full retirement age is attained in the case of unreduced annuities with less than 30 years of service

Any social security benefits due the retired employee or family member which begin after 1974 are paid through the RRB Even though the RRB processes payshyment the Social Security Administration is responsible for all adjudication

For survivors

A widow(er) must furnish proof of age proof of marriage and proof of the employeersquos death A surviving divorced spouse must furnish proof of divorce from the employee If applying for a disability annuity the widow(er) must also provide supporting medical evidence A parent must furnish proof of relationship to the emshyployee and proof of support from the employee

PROVISIONS OF THE RAILROAD RETIREMENT ACT 57

If children are eligible for benefits proof of the relationship and age of each child is needed If a child is over age 18 and disabled supporting medical evidence is required Eighteen-year-old students must provide proof of full-time elementary or high school attendance A stepchild of the employee must furnish proof of depenshydency on the employee

Retroactivity of a survivor annuity application is 1 year for disabled widow(er)s and 6 months for full retirement age widow(er)s mothers (fathers) children and parents Retroactivity for widow(er)s ages 60shy61 is 6 months if it does not increase the age reduction (this does not apply to surviving divorced spouses or remarried widow(er)s) Otherwise there is generally no retroactivity for reduced age widow(er)srsquo annuities Lumpshysum death benefit applications must be filed within 2 years after the death of the employee There is no time limit on filing for a residual payment

GARNISHMENTPROPERTY SETTLEMENTS

Garnishment Certain percentages of an employee spouse or survivor annuity may be subject

to legal process (ie garnishment) to enforce an obligation for child support and or alimony payments

Property settlements Employee tier II benefits vested dual benefits and supplemental annuities are

subject to court-ordered property settlements in proceedings related to divorce anshynulment or legal separation Tier I benefits are not subject to property settlements

58 2018 INFORMATIONAL CONFERENCE HANDBOOK

REPRESENTATIVE PAYEES

Railroad retirement or health insurance benefit payments can be made to a repshyresentative payee for a beneficiary if it would best serve the interests of the beneshyficiary Payments made in this way are generally for a child or an adult incapable of using the benefits in his or her own interest The representative payee must use the benefits for the beneficiaryrsquos best interest The benefits are generally used to provide for basic needs The representative payee must report events which could affect the payment of the benefits and be able to account for the benefits

IF REQUIREMENTS FOR BENEFITS ARE NOT MET

Retirement annuities are not payable by the RRB unless the employee has 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of sershyvice at any time Service includes any creditable military service

Survivor annuities are not payable unless the employee had a current connecshytion with the railroad industry and either 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of service at any time

In either of the above circumstances if the requirements are not met the emshyployeersquos railroad retirement (tier I) credits are transferred to the Social Security Administration and treated as social security credits Benefits paid by that agency would accordingly take into account both railroad and social security covered earnshyings

The Railroad Retirement Act does not allow a former railroad employee to withdraw his or her retirement (tier II) taxes Like social security taxes railroad retirement taxes are not refundable unless retirement tax withholding has exceeded annual maximums (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 59 DURATION OF BENEFITS

For practical purposes the average duration of monthly benefits to retired emshyployees is measured by the life expectancies of the beneficiaries at the time their benefits begin which take into account their age sex and other factors A non-disabled male employee retiring today at age 60 may expect to receive his annuity for 224 years on the average while a female age annuitant retiring at age 60 has a life expectancy of 256 years

Table 6--Duration of benefits

AGE OF BENEFICIARY WHEN ANNUITY BEGINS

AVERAGE DURATION (YEARS)

Retired male employee60 65 70

Retired female employee60 65 70

Disabled annuitant1

60

Spouse1

60 65 70

Aged widow(er)1

60 65 70

224 182 143

256 211 170

177

255 212 172

232 190 154

1 For both sexes combined

60 2018 INFORMATIONAL CONFERENCE HANDBOOK

RAILROAD RETIREMENT TAXES

By law railroad retirement tier I payroll taxes are coordinated with social secushyrity taxes and increase automatically when social security taxes rise Employees and employers pay tier I taxes which are the same as social security taxes In addition both employees and employers pay tier II taxes to finance railroad retirement benshyefit payments over and above social security levels A table showing tax rates from 1937 on is at the end of the next chapter

The tier I tax on employees and employers is 765 percent in 2018 The tier II tax on employees is 490 percent while the tier II tax rate on rail employers rail labor organizations and rail employee representatives is 1310 percent in 2018 An employee representative is a labor official of a non-covered labor organization who represents employees covered under the Acts administered by the RRB

Railroad retirement taxes apply to earnings received on an annual basis The amounts of earnings subject to these taxes are determined each year on the basis of national wage levels

DUAL TAX PAYMENTS

Railroad employees who also worked for a social security-covered employer in the same year may under certain circumstances receive a tax credit equivalent to any excess social security taxes withheld

Employees who worked for two or more railroads in a year or who had tier I taxes withheld from their RRB sickness benefits in addition to their railroad earnshyings may be eligible for a tax credit of any excess tier I or tier II railroad retireshyment taxes withheld Employees who had tier I taxes withheld from their suppleshymental sickness benefits may also be eligible for a tax credit of any excess tier I tax Such tax credits may be claimed on an employeersquos Federal income tax return

(Text continues on page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 61

Table 7--2018 Regular Railroad Retirement Taxes

MAXIMUM ANNUAL TAXABLE

TAX RATE EARNINGS

TIER I Employees amp Employers 765 $128400

TIER II Employees 490 $95400 Employers 1310 $95400

Annual regular taxes on employees earning $128400

TIER I TIER II TOTAL

Employees $982260 $467460 $1449720 Employers $982260 $1249740 $2232000

The tier I tax rate is divided into 620 percent for railroad retirement and 145 percent for Medicare hospital insurance The 2018 maximum earnings base for railroad retirement is $128400 and the Medicare hospital insurance tax is applied to all earnings Consequently employee and employer contribushytions continue to be made at the 145 percent rate even after the employee has earned $128400

An additional 09 percent in hospital insurance taxes (235 percent in total) applies to an individualrsquos income exceeding $200000 or $250000 for a marshyried couple filing a joint tax return While employers will begin withholding the additional Medicare tax as soon as an individualrsquos wages exceed the $200000 threshold the final amount owed or refunded will be calculated as part of the individualrsquos Federal income tax return

Introduction Welcome to our 2018 Informational Conference Program

You are an essential part of our efforts to help railroad workers and their families under-stand the many important benefits available to them under the Railroad Retirement and Rail-road Unemployment Insurance Acts and we greatly appreciate you being here today

The RRBrsquos Informational Conference Pro-gram was started by the Office of the Labor Member back in 1957 Since then it has pro-vided a valuable platform for keeping union officers up-to-date on the benefits available under the railroad retirement system Thou-sands of railroad labor representatives have attended these conferences over the years and have achieved a much better understanding of the provisions and financing of the railroad retirement and unemployment insurance systems and of the administrative organization of the RRB In turn they have helped make our administration of these programs more effective by passing on to their fellow railroad employees the information they acquire at these confer-ences

During this conference some of our field managers will describe and discuss the benefits available under the agencyrsquos retirement-survivor unemployment-sickness and Medicare programs I encourage you to meet and get to know our representatives here today and those in the RRB offices in your local areas They are experts on these programs and will be happy to help you with any railroad retirement questions or problems you may have

Walter A Barrows

Today you will also receive various informational materials that describe the RRBrsquos programs in detail Please take the time to read this material so that you will be knowledgeable about the benefits available to railroad workers and their families The RRB counts on you to help keep your fellow union members informed of these benefit provisions so keep your Informational Kit handy as a source of reference when questions arise Please know that you have an important role in ensuring that each and every railroad employee retiree and dependent receives the benefits to which he or she is entitled and we are grateful for your invaluable assistance

Again thank you very much for your interest in the Informational Conference Program and for taking the time to meet with us here today

Walter A Barrows Labor Member

Contents

1 Development of the Railroad Retirement System 1

The Railroad Retirement Acts of 1934 and 1935 2 The Railroad Retirement Act of 1937

and Later Amendments 3 The Railroad Retirement Act of 1974 8 1981 Amendments 10 The 1983 Railroad Retirement Solvency Act 13 Legislation Enacted 1985-2000 15 The Railroad Retirement and Survivorsrsquo

Improvement Act of 2001 18 Court Decisions Legislation Enacted 2006-2015 21 Employment Payrolls and Tax Collections 22

2 Provisions of the Railroad Retirement Act 23 Creditable Service and Earnings 26 Employee and Spouse Annuities 27 Survivor Benefits 43 Retirement and Survivor Information 54 Employee and Spouse Annuity Formula Components 68 Survivor Annuity Formula Components 78

3 Financing of the Railroad Retirement System 83 Payroll Taxes 84 Financial Interchange 86 Investments 87 Borrowing from General Revenues Related to the Financial Interchange 88 Appropriations from General Revenues 88 Taxation of Railroad Retirement Benefits 91 Financial Position of the Railroad Retirement System 91 Financial Report 93 Tax Tables 96

Contents

4 Health Insurance for the Aged and Disabled 101 Legislative Background 101 Eligibility 103 Part A and Part B Enrollment 103 Explanation of Hospital Insurance Benefits (Part A) 105 Explanation of Medical Insurance Benefits (Part B) 107 Medicare Advantage Plans (Part C) 110 Medicare Prescription Drug Coverage (Part D) 111

5 Development of the RailroadUnemployment Insurance System 113

The Railroad Unemployment Insurance Act of 1938 and Later Amendments 114

The Technical and Miscellaneous Revenue Act of 1988 118 The Railroad Unemployment Insurance

Amendments Act of 1996 121 Employment and Benefits 122

6 Provisions of the Railroad UnemploymentInsurance Act 123 Benefit Provisions 123 Disqualifications 130 Free Placement Service 131 Payments 131 Getting Unemployment Benefits 132 Getting Sickness Benefits 133

7 Financing Unemployment and Sickness Insurance 141 Contributions 141 Railroad Unemployment Insurance Account 143 Financial Report 145

8 Administration of the Railroad Retirement System 147 Administration 147 Keeping Beneficiaries Informed 151 Program Integrity 152

I n d e x 155

1Development of the Railroad Retirement System

Private pension plans originated in the railroad industry in 1874 when the first for-mal industrial pension plan in North America was established By 1927 over 80 per-cent of all railroad employees in the United States worked for employers who had for-mal plans in operation but only a small proportion of employees ever received benefits under these plans The pension plans had a number of serious defects They generally paid inadequate benefits and had limited provisions for disability retirement Credits could not be transferred freely from employer to employer and the employers could terminate the plans at will With few exceptions the plans were inadequately financed and could not withstand even temporary difficulties

The Great Depression of the early 1930s led to movements for retirement plans on a national basis because few of the nationrsquos elderly were covered under any type of retirement plan Railroad employees were particularly concerned because the private

Why a separate railroad retirement system Private pension plans originated in the railroad industry

By the 1930s employment conditions had deteriorated

Many older workers in railroad industry

Railroad retirement system broadened existing programs under uniform national plan

1

2 2018 INFORMATIONAL CONFERENCE HANDBOOK

railroad pension plans could not keep up with the demands made upon them by the general deterioration of employment conditions and by the great accumulation of older workers in the industry While the social security system was in the planning stage railroad workers sought a separate railroad retirement system which would continue and broaden the existing railroad programs under a uniform national plan The proposed social security system was not scheduled to begin monthly benefit payments for several years and would not give credit for service performed prior to 1937 while conditions in the railroad industry called for immediate benefit pay-ments based on prior service

Legislation was enacted in 1934 1935 and 1937 to establish a railroad retire-ment system separate from the social security program legislated in 1935 Such legislation taking into account the particular circumstances of the rail industry was not without precedent Many laws pertaining to rail operations and safety had already been enacted since the Interstate Commerce Act of 1887 Since passage of the Railroad Retirement Acts of the 1930s numerous other railroad laws have sub-sequently been enacted

THE RAILROAD RETIREMENT ACTS OF 1934 AND 1935

The Railroad Retirement Act of 1934 set up the first retirement system for non-governmental workers in this country to be administered by the Federal Govern-ment However the Act was declared unconstitutional by a Federal district court and this decision was sustained by the Supreme Court The Railroad Retirement and Carriersrsquo Taxing Acts of 1935 were enacted to avoid the constitutional difficul-ties encountered by the 1934 Act However these Acts were also challenged in the courts and a Federal district court held that neither the employees nor their employ-ers could be compelled to pay railroad retirement taxes The court however did not prohibit the payment of benefits and the Railroad Retirement Board (RRB) began awarding annuities in July 1936 under the provisions of the 1935 Act

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 3

While an appeal was pending railroad management and labor at the request of President Roosevelt formed a joint committee to negotiate their differences The result was a memorandum of agreement which led to the Railroad Retire-ment and Carriersrsquo Taxing Acts of 1937 establishing the railroad retirement sys-tem The pensions of retired employees on the railroadsrsquo private pension rolls were transferred to the RRBrsquos rolls with pension reductions restored The benefit payments of almost 50000 pensioners were taken over by the RRB in July 1937 There followed an immediate reduction in both the number of employed and un-employed older railroad workers By the end of 1938 the number of workers age 65 and over in active railroad service was less than one-half of the number two years earlier Almost 100000 employees had retired under the system by that date 80 percent of them under the nondisability provisions

THE RAILROAD RETIREMENT ACT OF 1937 AND LATER AMENDMENTS

The 1937 Act set up a staff retirement plan which provided annuities to aged retired employees based on their creditable railroad earnings and service The amounts of retirement annuities awarded were directly related to the employeersquos earnings and length of service with a maximum of $120 a month Creditable earn-ings were limited to a maximum of $300 a month while no more than 30 years of service could be credited when service before 1937 was counted Annuities could be paid at age 65 or later regardless of length of service or at ages 60-64 (on a re-duced basis) after 30 years of service

The conditions for paying annuities based on disability were severely restricted The disability had to be total and permanent and 30 years of service were required for full annuities Employees could receive disability annuities at ages 60-64 after less than 30 years of service but on a reduced basis

The Act made little provision for dependents of deceased employees and no provision for spouse annuities A survivor could receive a lump sum equal to 4 percent of the employeersquos creditable earnings after 1936 less any annuity payments

4 2018 INFORMATIONAL CONFERENCE HANDBOOK

already made In addition a retiring employee could elect to receive a reduced an-nuity in order to provide an annuity to his surviving spouse

The system was financed by a schedule of taxes beginning with 275 percent each on employers and employees applicable to the first $300 of monthly compen-sation

Amendments to the 1937 Act Numerous amendments after 1937 increased benefits and added to what began

as a staff retirement system social insurance features similar to those provided by the social security system

The first significant sets of amendments were enacted in 1946 and 1951 By initiating coordination in certain areas with the social security system they laid the foundation for the evolution of the systemrsquos present structure Amendments enacted in 1946 added survivor benefits to the railroad retirement system which were simi-lar to those provided under social security coverage but approximately 25 percent higher

These amendments also introduced the first step of coordination with the social security system by dividing jurisdiction over individual survivor benefits between the RRB and the Social Security Administration Benefits to survivors were there-after based on combined railroad retirement and social security earnings credits

Provisions for annuities based on occupational disabilitymdasha staff retirement featuremdashwere also established by the 1946 amendments The provision for occupa-tional disability annuities recognized that employees who were not totally disabled could be prevented from earning a living because they could not perform their reg-ular railroad jobs The 1946 amendments also reduced the service requirements for total disability annuities making it possible for comparatively young disabled employees to receive benefits

In addition the amounts of disability retirement annuities were increased through the elimination of the reduction for employees with less than 30 years of service and the extension of new minimum provisions of the law to annuities based

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 5

on disability In 1954 annuities were provided for disabled children of deceased employees And in 1968 disabled widows ages 50-59 were added to those who could receive benefits

In 1951 amendments added annuities for the spouses of retired railroad em-ployees This legislation completed the addition of social insurance features to the railroad retirement system and expanded the coordination of the railroad retirement and social security systems

Provision was made for social security to assume jurisdiction of benefits for employees not having at least 10 years of railroad service and a minimum guaranty was provided to ensure that railroad retirement benefits would be no less than the benefit or additional benefit the social security system would have paid on the basis of the railroad service involved In addition a financial interchange was estab-lished between the two systems to apportion the costs of benefits and taxes related to railroad service on an equitable basis

In 1965 provision was made to coordinate the railroad retirement tax base and tax rate with those of the social security system This provision and the existing pro-visions for the financial interchange served as an operating vehicle through which the Medicare program was easily extended in 1965 to railroad employees and mem-bers of their families on the same basis as it was provided for social security bene-ficiaries The addition of a strictly staff benefit for career employees was provided in 1966 in the form of supplemental railroad retirement annuities

By 1970 amendments to the Act provided for regular annuities of more than double the amount provided under the original formula The amounts of earnings creditable and taxable were $650 a month in 1970 compared with $300 originally Tax rates had substantially increased in order to finance the new types of benefits the increases in benefit amounts and other liberalizations in the program The rate of regular railroad retirement taxes still divided equally between employees and employers in 1971 was 995 percent on each as compared with 35 percent in 1946

The annuities being paid in 1970 included a general benefit increase of 15 per-cent provided in that year following a social security benefit increase of 15 percent

6 2018 INFORMATIONAL CONFERENCE HANDBOOK

In the following two years of an inflationary spiral in the national economy social security and railroad retirement benefits were again substantially increased by 10 percent in 1971 and 20 percent in 1972 However these three increases were pro-vided for railroad retirement annuities on a temporary basis only The costs of mak-ing these three increases aggregating 518 percent permanent without adequate fi-nancing would have jeopardized the solvency of the system Congress directed that a Commission on Railroad Retirement be formed to study the railroad retirement system and its financing for the purpose of recommending to Congress changes in the system that would ensure adequate benefit levels on an actuarially sound basis

The preliminary recommendations of management and labor for revision of the railroad retirement system recorded in a Memorandum of Understanding were en-acted by the Congress in 1973 The major provisions which reflected components of an industry-wide wage settlement effected a redistribution of railroad retirement taxes and earlier retirement as follows Generally effective October 1 1973 em-ployee and employer tax rates under the Railroad Retirement Tax Act were revised so as to reduce the employee rate to the percentage rate paid by employees in social security-covered employment with the employer absorbing the difference so that total tax income to the program was maintained at the level in effect before the change Employee rates consequently were lowered from 1060 percent of credit-able earnings to 585 percent employer rates correspondingly increased from 1060 percent to 1535 percent Effective July 1 1974 all employees at least 60 years of age and having 30 years or more of creditable railroad service could retire without their annuities being subject to reduction for retirement before age 65 Under previ-ous law only female employees were granted this advantage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 7

Commission on Railroad Retirement REPORT

Major changes in the law were recommended in the Commissionrsquos 1972 report as its basic solution to the serious problems of the system Essentially these in-volved a proposed restructuring of the railroad retirement system with two separate tiers of benefits tier I being a social security-type benefit and tier II a supplemental staff benefit In addition the Commission recommended a phase-out of dual railroad retirement-social security benefits with some protection for the vested rights to such benefits already acquired by employees

Under the 1937 Act an individual engaging in covered employment under both the Railroad Retirement Act and the Social Security Act was entitled to benefits under both Acts assuming he or she met at least the minimum requirements for benefit eligibility By the early 1970s approximately 40 percent of all beneficiaries on the RRBrsquos rolls were also receiving social security benefits Because of certain duplications in their dual benefits considered a windfall element the total of their benefits from both systems averaged more than the annuities of railroad employees who worked in the rail industry exclusively and who had paid proportionally higher retirement taxes for the purpose of receiving higher benefits At the same time dual benefits were a cost to the railroad retirement system because they reduced the systemrsquos income from its financial interchange with the social security system (By the mid-1970s the costs to the railroad retirement system of dual benefits exceeded $450 million per year and would have been a major factor in bankrupting the railroad retirement system if allowed to continue The cumulative total loss to the system by 1974 had been about $4 billion)

Upon the release of the Commissionrsquos report Congress ordered that represen-tatives of employees and representatives of carriers negotiate mutual recommen-dations for a restructuring of the railroad retirement system which would put it on a sound financial basis taking into account the report and recommendations of the Commission on Railroad Retirement

8 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT ACT OF 1974

The Railroad Retirement Act of 1974 reflecting the basic principles of the Commission Report and incorporating the subsequent management-labor agree-ment was enacted on October 16 1974

Two-Tier Formulas The 1974 Act provided a first tier formula yielding amounts equivalent to social

security benefits taking into account both railroad retirement and nonrailroad so-cial security credits A second tier formu-la based on railroad service exclusively provides benefits comparable to those paid over and above social security ben-efits by other industrial pension systems The total annuity yielded by the tier for-mulas continued traditional levels of rail-road retirement benefits and reflected the three cost-of-living increases aggregating 518 percent which had been provided between 1970 and 1972 on a temporary basis

Dual Benefit Phase-Out

1974 Act Features

two-tier benefit formula

phase-out of vested dual benefits

cost-of-living increases

benefit improvements

The 1974 Act eliminated duplications in dual railroad retirement-social security benefits for new hires and individuals not vested as of December 31 1974 under both programs Dual benefits for vested employees were protected through provi-sion for payment of an amount in their annuities referred to as a vested dual benefit However such vested dual benefit amounts were not allowed to increase because of any social security or railroad credits earned after December 31 1974

For career employees vesting was defined as having 10 years of railroad ser-vice on December 31 1974 and in addition having enough quarters of coverage

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 9

under the social security program to be entitled to a benefit at age 62 if no further social security credits were acquired after December 31 1974

Vesting for employees who had fully qualified for benefits under both systems but had left the industry prior to 1974 presented a difficult problem The 1974 Act favored employees who had remained in the railroad industry more than those who left railroad employment Accordingly active or long-term employees in the rail-road industry in a sense were placed in the same situation as employees who had already retired while former employees were made subject to more stringent re-quirements The resulting vesting provisions were subsequently tested in the courts and upheld by the US Supreme Court in 1980

Cost-of-Living Increases The 1972 amendments to the Social Security Act introduced provisions for cost-

of-living adjustments in social security benefits on the basis of changes in the Con-sumer Price Index Under the two-tier plan the first tier railroad retirement benefit increases automatically the same way social security benefits increase Four sepa-rate tier II cost-of-living adjustments were provided during the six-year period com-mencing January 1 1975 (A fifth increase was provided in subsequent legislation)

Benefit Improvements The 1974 Act also provided improvements in existing benefits The initial agree-

ment of labor and management had enabled employees to retire on or after July 1 1974 on unreduced annuities if they met the eligibility requirements of attaining age 60 and completing 30 years of service But an employee could not receive a supplemental annuity until age 65 nor could a spouse receive a spouse annuity until the employee reached age 65 The Act revised the eligibility requirements for these benefits so that they were coordinated directly with the employee annuity requirements Under the 1937 Act the vast majority of widows and other survivors received benefits based upon 110 percent of the comparable social security benefit and the resulting amount was generally felt to be inadequate in relation to the level of other railroad benefits The 1974 Act survivor formula increased the calculation basis to 130 percent from the former 110 percent

10 2018 INFORMATIONAL CONFERENCE HANDBOOK

Financing It was anticipated that the changes in the benefit formulas the reduction in dual

benefits higher investment earnings plus provisions for additional funds from the Federal Government to pay the phase-out costs of dual benefits together would place the railroad retirement system on a reasonably sound basis However the cost estimates made at that time did not anticipate the resurgence of substantial inflation in the latter part of the decade which led to a recurrence of financial difficulties for the railroad retirement system

With regard to financing the phase-out costs of dual benefits the joint manage-ment-labor committee initially proposed that the cost of vested dual benefit pay-ments be paid out of the social security trust funds as this element was basically a social security benefit However Congress concluded that the cost should be borne by the General Treasury It was thought that it would be unfair to impose this cost upon current and future employees who would not (except where vested rights are involved) be permitted to receive dual benefits upon retirement or upon the rail-roads since the excess benefit arose out of nonrailroad employment performed by these individuals Payment out of the General Treasury was supported by a prec-edent regarding military service and by the fact that the dual benefit problem had been brought about by prior congressional action repealing past dual benefit restric-tions over the objections of the railroads

1981 AMENDMENTS

By 1980 recurring inflation and recession combined with other factors placed financial stresses on the railroad retirement system which made it clear that further financial action was needed to maintain the system Railroad retirement amend-ments were subsequently enacted on August 13 1981 as part of an Omnibus Bud-get Reconciliation Act The amendments were generally effective October 1 1981

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 11

Taxes These amendments increased railroad retirement taxes on both rail employers

and employees While tier I taxes on employers and employees remained at the same rate as social security taxes 665 percent in 1981 the 95 percent tier II tax paid by employers was increased to 1175 percent and employees assumed a tier II tax of 2 percent The amendments also gave the RRB the authority to borrow from US Treasury general funds on the basis of forthcoming financial interchange in-come if Railroad Retirement Account funds were insufficient to pay benefits during a month

Benefit Provisions Although the two-tier benefit structure provided by the 1974 Act was left intact

changes were made in the tier II formula and there were other changes in benefit provisions The amendments revised the employee spouse and survivor formulas for annuity portions paid over and above social security levels Generally for career retirees whose annuities are awarded on or after October 1 1981 the simplified formula yields awards that automatically keep pace with average wage increas-es in the last 60 months of service The 1981 law continued tier II employee and spouse cost-of-living increases while revising survivor cost-of-living increases to correspond with those provided employees and spouses It also broadened the cur-rent connection requirement applicable to certain career employee benefits While the amended law eliminated future supplemental annuity closing dates it restricted future supplemental annuity eligibility to employees with some service prior to Oc-tober 1981 (Under prior law an employee who worked in railroad service after a specified closing date based on his or her 65th birthday would permanently forfeit entitlement to a supplemental annuity) In addition the amendments provided ben-efits for divorced spouses surviving divorced spouses and remarried widow(er)s which are like those provided under the Social Security Act

12 2018 INFORMATIONAL CONFERENCE HANDBOOK

This legislation also required prorated adjustments in individual vested dual benefit payments depending upon the amounts appropriated to the fund created for these payments and the level of vested dual benefit payments was made contingent on the annual Federal budget and appropriations process The amendments restrict-ed the further award of vested dual benefit payments to vested employees with dual coverage on their own earnings and precluded further awards of vested dual benefit payments to spouses or widow(er)s Furthermore after 1981 no further cost-of-liv-ing adjustments are made to vested dual benefit payments

Other Financing Provisions The 1981 amendments mandated in the event of certain adverse financial in-

dicators that railway management and labor and the White House make further financing recommendations to Congress And the new law required the RRB to reduce annuity levels during any fiscal year in which it appears there would be insufficient funds with which to make full benefit payments on a timely basis for every month of the year

In the first half of 1981 when the amendments were developed it was antici-pated that the financing arrangements would provide the railroad retirement system with adequate funding throughout the 1980s However the continuing recession in the national economy depressed rail traffic levels to the extent that large-scale lay-offs were underway by the first quarter of 1982 Average monthly employment in fiscal year 1982 dropped to 457000 from the 512000 average of the previous year and it subsequently declined to 388000 in the first quarter of 1983 The decline in employment limited payroll tax income accordingly In addition increased unem-ployment benefit payments resulting from the layoffs made such unprecedented de-mands on the Railroad Unemployment Insurance Account that it owed $500 million to the Railroad Retirement Account by the end of March 1983

The condition of the Railroad Retirement Account consequently deteriorated to the point that the RRB was required to prepare to reduce annuity levels on October 1 1983 by an estimated 40 percent of tier II portions in the absence of remedial financial legislation

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 13

THE 1983 RAILROAD RETIREMENT SOLVENCY ACT

The scheduled annuity reductions were averted by enactment of the Railroad Retirement Solvency Act on August 12 1983 The 1983 Act was based on nego-tiated recommendations of management and labor and also incorporated recom-mendations of Congress and the Administration The amendments were in part patterned after major social security amendments enacted earlier in the year which had already effected changes in railroad retirement taxes and benefits through coor-dinating provisions in the Railroad Retirement Act

Taxes Under the Railroad Retirement Solvency Act tier II taxes on employers in-

creased from 1175 percent to 1275 percent in January 1984 to 1375 percent in January 1985 and to 1475 percent in January 1986 Tier II taxes on employees increased from 2 percent to 275 percent in 1984 to 350 percent in 1985 and to 425 percent in 1986 And since 1985 railroad retirement taxes are applied to earnings on an annual rather than a monthly basis As a result of the 1983 so-cial security amendments tier I taxes on employers and employees increased from 670 percent to 7 percent in January 1984 to 705 percent in 1985 to 715 per-cent in 1986 to 751 percent in 1988 and to 765 percent in 1990 (The tier I tax rate has remained unchanged since 1990 however it was temporarily reduced to 565 percent on employees in 2011 and 2012)

The 1983 social security amendments subjected railroad retirement tier I annui-ty portions to Federal income taxes on the same basis as social security benefits and the Solvency Act made tier II benefits and vested dual benefit payments subject to Federal income tax on the same basis as private pensions beginning with tax year 1984 The revenues raised from income taxes on tier I and vested dual benefits are used for benefit payments Revenues raised by the tax on tier II benefits were to be used for benefit payments through fiscal year 1988 after which the revenues would remain in general US Treasury funds Subsequent legislation extended these trans-fers permanently

14 2018 INFORMATIONAL CONFERENCE HANDBOOK

Other Financing Provisions The Railroad Retirement Account was reimbursed in three installments from the

general fund of the US Treasury for shortfalls in vested dual benefit appropriations between 1975 and 1981 The railroad retirement systemrsquos authority to borrow gen-eral US Treasury funds until the RRB receives financial interchange funds from the social security system was broadened to place financial interchange monies in the Railroad Retirement Account on a current basis

Benefit Provisions The 1983 social security amendments deferred July 1983 cost-of-living increas-

es to January 1984 and required that future increases be made in January of subse-quent years

This deferral applied to railroad retirement tier I annuity amounts as well as social security benefits The Railroad Retirement Solvency Act correspondingly changed the future payment dates of tier II cost-of-living increases from July 1 to January 1 with the first increase payable on January 1 1985 It also required an offset of the dollar amount of the next five percent of tier I cost-of-living increases from tier II benefits

The Act modified early retirement provisions for 30-year employees attaining age 60 after June 1984 by applying certain reductions to the tier I portions of their annuities if they retired before age 62 The reductions did not affect tier II benefits and employees who acquired 30 years of service and attained age 60 before July 1 1984 could still retire at any time with full benefits as under prior law (The Rail-road Retirement and Survivorsrsquo Improvement Act of 2001 as described on pages 18-21 eliminated these reductions for 6030 employees retiring after 2001) The 1983 law established a five-month waiting period for railroad retirement disability annuities just as for social security disability benefits and altered the tier I compu-tation of annuities subject to reduction for certain non-covered service pensions It required the RRB to honor court orders that treat non-tier I railroad retirement ben-efits as property subject to division in proceedings related to divorce annulment or legal separation And the Act limited the retroactivity of applications for benefits to a maximum of six months to conform to the Social Security Act except for disabil-

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 15

ity benefit applications which can retroact 12 months

The Solvency Act eliminated annuity reductions made under prior law when military service was counted as railroad service and was also the basis for benefits under another Federal law It conformed railroad retirement student benefit provi-sions to social security student benefit provisions and eliminated age reductions applied to disabled widow(er)srsquo annuities for months they were under age 60 when their annuities began

LEGISLATION ENACTED 1985-2000

The Balanced Budget and Emergency Deficit Control Act of 1985 known as the GrammRudmanHollings Act enacted in December 1985 required decreas-es in vested dual benefit payments during the 1986 fiscal year and suspension of the January 1986 cost-of-living increase in the tier II portions of railroad retirement annuities GrammRudman andor related budget legislation reduced vested dual benefits and supplemental annuities periodically in subsequent years

Budget reconciliation legislation enacted in April 1986 included changes in Internal Revenue Code provisions increasing income taxes on some railroad re-tirement annuities Effective with tax year 1986 the tier I portion of a railroad retirement annuity which is treated as a social security benefit for Federal income tax purposes was limited for tax purposes to amounts actually equivalent to social security benefits This primarily affected tier I early retirement benefits payable be-tween ages 60 and 62 and some occupational disability benefits that are now treated like private pensions

The Tax Reform Act of October 1986 eliminated for annuities beginning af-ter July 1 1986 the three-year recovery rule for contributory pensions which had been applicable to railroad retirement benefits exceeding social security equivalent levels Under the tax reform law railroad retirement benefits exceeding social se-curity equivalent levels are taxable immediately upon retirement For tax reporting purposes benefit payments are prorated on the basis of estimated life expectancies to exempt an employeersquos previously-taxed pension contributions

16 2018 INFORMATIONAL CONFERENCE HANDBOOK

While the railroad retirement trust funds held a reserve of $69 billion at the end of fiscal year 1987 the continuing decline in railroad employment had caused concern over the systemrsquos financing in the next century

A Federal budget deficit reduction bill enacted in December 1987 increased tier II tax rates in January 1988 to 1610 percent on employers and 490 percent on employees and extended for one year until October 1 1989 the time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits

1988 Amendments The Railroad Unemployment Insurance and Retirement Improvement Act

was included in the Technical and Miscellaneous Revenue Act of 1988 enacted November 10 1988 The railroad retirement amendments in the Act eliminated the provision suspending annuities of retired employees and spouses who work for their last pre-retirement nonrailroad employers but provided for tier II earnings deduc-tions in such cases The Act also increased the amount disabled railroad retirement annuitants could earn without reducing their benefits from $200 per month to $400 per month exclusive of work-related expenses

In addition it provided railroad retirement military service credits under cer-tain conditions for railroad workers who served in the Armed Forces between June 15 1948 and December 15 1950 but had not been allowed service credit be-cause there was not a national state of emergency in force during this period before the Korean War

The Act also provided a lump sum equal to railroad retirement tier II payroll taxes deducted from separation or severance payments made after 1984 to be paid upon retirement to employees meeting minimum service requirements if the sepa-ration or severance payments did not yield additional railroad retirement service or earnings credits

Social security amendments included in this legislation modified the non-cov-ered service pension reductions applied to the social security and tier I railroad re-tirement benefits of employees awarded certain Federal State or local government pensions in recent years

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 17

Omnibus budget reconciliation legislation enacted in 1989 included a num-ber of railroad retirement and social security provisions affecting payroll taxes and benefits in 1990 and subsequent years The budget law increased the amount of earnings subject to social security and railroad retirement payroll taxes and spec-ified that 401(k) contributions and some employer-paid life insurance premiums are subject to railroad retirement payroll taxes conforming railroad retirement with social security

The 1989 budget law also revised sequestration of railroad retirement supple-mental annuities under the GrammRudman Act in fiscal year 1990 Subsequent 1990 omnibus budget legislation permanently exempted supplemental annuities from reductions under the GrammRudman Act The 1990 budget law also increased the maximum compensation subject to Medicare hospital insurance payroll tax and mandated an expedited payroll tax deposit schedule for large employers covered by social security or railroad retirement Budget legislation enacted in 1993 made all earnings subject to the Medicare payroll tax and for those in high tax brackets made a larger amount of social security and railroad retirement tier I benefits sub-ject to Federal income tax

The time during which revenues from Federal income taxes on tier II railroad retirement benefits could be transferred to the Railroad Retirement Account for use in paying benefits was extended one year in 1989 and 1990 budget legislation further extended the date until October 1 1992 In 1994 legislation extended the transfers retroactive to October 1992 on a permanent basis which improved the financing of the railroad retirement system

Legislation enacted in April 2000 eased the earnings restrictions affecting so-cial security beneficiaries working after full retirement age The legislation also applied to railroad retirement annuitants but it did not change the railroad retire-ment work restrictions applying to last pre-retirement employment which are not included in the Social Security Act

18 2018 INFORMATIONAL CONFERENCE HANDBOOK

THE RAILROAD RETIREMENT AND SURVIVORSrsquo IMPROVEMENT ACT OF 2001

The Railroad Retirement and Survivorsrsquo Improvement Act of 2001 signed into law December 21 2001 liberalized early retirement benefits for 30-year employees and their spouses eliminated a cap on monthly retirement and disability benefits lowered the minimum service require-ment from 10 years (120 months) to 5 2001 Act years (60 months) of service if performed Benefit Changesafter 1995 and provided increased bene-

6030 retirementfits for some widow(er)s Financing sec- maximum provision eliminated tions in the law provided for the invest-

ment of railroad retirement funds in non- basic service requirement lowered

governmental assets adjustments in the widow(er)srsquo benefits

payroll tax rates paid by employers and employees and the repeal of a supplemental annuity work-hour tax The law was based on joint recommendations to Congress negotiated by a coalition of rail labor organizations and rail freight carriers

6030 Retirement The law amended the Railroad Retirement Act by eliminating the early retire-

ment reduction applied to the annuities of 30-year employees retiring between the ages of 60 and 62 if their annuities begin January 1 2002 or later The spouses of such employees are also eligible for full annuities at age 60 Full 6030 benefits had not been payable since 1983 legislation reduced such early retirement benefits

Maximum Provision The law eliminated effective January 1 2002 a maximum on the amount of

combined monthly employee and spouse benefit payments which had been intend-ed to prevent benefits from exceeding an amount based on an employeersquos earnings immediately prior to retirement This maximum provision had the unintended ef-fect of reducing benefits for former employees with no earnings or low earnings in the 10-year period prior to retirement and for long-service employees with mod-erate earnings

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 19

Basic Service Requirement The legislation lowered the minimum eligibility requirement for regular rail-

road retirement annuities from 10 years (120 months) of creditable railroad service to 5 years (60 months) of creditable railroad service for those with 5 years of ser-vice rendered after 1995 This provision was effective January 1 2002 and was not retroactive

Widow(er)srsquo Benefits The legislation established an initial minimum amount based on the two-tier

annuity amount that would have been payable to the railroad employee at the time the widow(er)rsquos annuity is awarded minus any applicable reductions Widow(er)rsquos annuities computed on the basis of the initial minimum amount will not increase until the amount payable under previous law plus cost-of-living increases is higher than the initial minimum amount

This provision was effective February 1 2002 and was not retroactive It ap-plied to widow(er)s on the rolls before the effective date only if the annuity the wid-ow(er) was receiving on the effective date was less than she or he would have re-ceived had the legislation been in effect on the date the widow(er)rsquos annuity began

Investment Changes The legislation provided for the transfer of railroad retirement funds from the

Railroad Retirement Accounts to the National Railroad Retirement Investment Trust whose Board of seven trustees is empowered to invest Trust assets in nongovern-mental assets such as equities and debt as well as in governmental securities The sole purpose of the Trust is to manage and invest railroad retirement assets

The Trust is a tax-exempt entity inde-pendent from the Federal Government Its Board of Trustees is comprised of the fol-

2001 Act Financing Changes

investments

payroll tax rates

supplemental annuity funding

20 2018 INFORMATIONAL CONFERENCE HANDBOOK

lowing three members selected by rail labor to represent the interests of labor three members selected by rail management to represent management interests and one independent member selected by a majority of the other six members The Trustees are subject to fiduciary standards similar to those required by the Employee Retire-ment Income Security Act The Trust must submit an annual report to Congress on its operations

Effect on Payroll Tax Rates The legislation reduced tier II tax rates on rail employers including rail labor

unions in calendar years 2002 and 2003 and beginning with 2004 provides auto-matic adjustments in the tier II tax rates for both employers and employees It also repealed the supplemental annuity work-hour tax rate paid by employers beginning with calendar year 2002

The tier II tax rate on rail employers and rail labor organizations was reduced from 1610 percent to 1560 percent in 2002 and to 1420 percent in 2003 The tier II tax rate for rail employee representatives was 1475 percent in calendar year 2002 and 1420 percent in 2003

While there was no change in the tier II tax rate of 490 percent on employees in the years 2002 and 2003 starting with calendar year 2004 tier II taxes on both employers and employees have been based on the ratio of certain asset balances to the sum of benefits and administrative expenses (the average account benefits ratio) Depending on the average account benefits ratio tier II taxes for employers range between 820 percent and 2210 percent while the tier II tax rate for employ-ees ranges between 0 percent and 490 percent In 2005 as a result of this provision the tier II tax rate on employees decreased to 440 percent from 490 percent The rate on employers and rail employee representatives decreased to 1260 percent from 1310 percent The 2006 rates were the same as in 2005 In 2007 the tier II tax rate on employees decreased from 440 percent to 390 percent and on employers it decreased from 1260 percent to 1210 percent Those rates remained the same through 2012 In 2013 the tier II tax rate on employees increased from 390 percent to 440 percent The rate on employers increased from 1210 percent to 1260 per-cent Those rates did not change in 2014 In 2015 the tier II tax rate on employees increased from 440 percent to 490 percent The rate on employers increased from

DEVELOPMENT OF THE RAILROAD RETIREMENT SYSTEM 21

1260 percent to 1310 percent Those rates remain unchanged through 2018

Supplemental Annuity Funding In addition to repealing the supplemental annuity work-hour tax the legislation

eliminated the separate Supplemental Annuity Account Supplemental annuities are funded through the National Railroad Retirement Investment Trust

COURT DECISIONS LEGISLATION ENACTED 2006-2015

The Pension Protection Act of 2006 was signed into law August 17 2006 The Act effective August 17 2007 provided divorced spouses a railroad retirement an-nuity independent of the employeersquos actual entitlement and extended court-ordered partition payments to surviving former spouses Legislation enacted January 12 2007 increased the amount employees receiving railroad retirement disability an-nuities can earn without losing any benefits Legislation modifying partition pay-ments was signed into law on December 23 2008

The Tax Relief Unemployment Insurance Reauthorization and Job Cre-ation Act of 2010 was signed into law December 17 2010 Among its provisions the Act temporarily lowered the social security payroll tax rate on employees and the corresponding tier I payroll tax rate on railroad employees by 2 percentage points for calendar year 2011 The Temporary Payroll Tax Cut Continuation Act of 2011 extending the temporary payroll tax reduction through February 2012 was signed into law December 23 2011 The Middle Class Tax Relief and Job Creation Act of 2012 signed into law February 22 2012 extended the reduction through 2012

On June 26 2013 the Supreme Court found unconstitutional Section 3 of the Defense of Marriage Act which had prevented the Federal Government from recognizing marriages of same-sex couples As a result the RRB began accepting applications for benefits from those eligible spouses in same-sex marriages who were validly licensed under State law On June 26 2015 the Supreme Court further found that the Constitution required all States to license same-sex marriages and to recognize lawfully licensed same-sex marriages performed in other States

22 2018 INFORMATIONAL CONFERENCE HANDBOOK

EMPLOYMENT PAYROLLS AND TAX COLLECTIONS

Railroad employment has varied considerably over the years The total number of employees with some service in a year has ranged from a high of 3 million in the war year 1945 to a low of 247000 in calendar year 2010 In 2016 total employment was 253000 the first decrease since 2010 The average number employed has var-ied between a high of 17 million in the war years 1944-45 to a low of approximate-ly 221000 in 2010 Average employment in 2016 fell 16000 from the previous year to 231000

In 2017 total railroad payroll was an estimated $199 billion while the taxable payrolls (on the $127200 tier I and the $94500 tier II annual bases) were an esti-mated $186 billion and $172 billion respectively Tier I payroll includes miscella-neous compensation such as sick pay The employee tax rates for 2017 were 765 percent for tier I and 49 percent for tier II Employer rates were 765 percent and 131 percent respectively The tier I rate is divided into 62 percent for retirement disability and 145 percent for Medicare hospital insurance While the 62 percent rate applied to the $127200 annual base all of an employeersquos compensation was subject to the 145 percent Medicare tax Employees pay an additional 09 percent in Medicare hospital insurance taxes on earnings above $200000 (for those who file an individual return) or $250000 (for those who file a joint return) Retirement tax collections in 2017 were approximately $60 billion

benefits awarded since inception of the railroad retirement program

through fiscal year 2017

bull 2061000 to RETIRED EMPLOYEES bull 1233000 to SPOUSES bull 2534000 to SURVIVORS

at the end of fiscal year 2017 517000 BENEFICIARIES were being paid $125 billion a year in benefits

SCOPE OF RRB OPERATIONS

2Provisions of the Railroad Retirement Act

Service performed for a covered employer or as an employee representative is creditable toward all types of benefits under the Railroad Retirement Act Covered employers include interstate railroads and their affiliates engaged in railroad-conshynected operations as well as employer associations and national railroad labor orshyganizations and their subordinate units In some cases military service may be counted as railroad service

Service for an employer is creditable if it is compensated and the employee is subject to the continuing supervision of the employer Benefits are based on earnings credits and months of service Earnings are creditable up to certain annual maximums on the amount of compensation subject to railroad retirement taxes as shown in the table at the end of the next chapter Credit for a month of railroad service is given for every month in which an employee had some compensated service for an emshyployer covered by the Railroad Retirement Act even if only one dayrsquos service is performed in the month (However local lodge compensation earned after 1974 is disregarded for any calendar month in which it is less than $25) Special rules may apply for crediting of service months resulting from a settlement for an on-the-job injury

Benefits are based on earnings credits and months of service

23

24 2018 INFORMATIONAL CONFERENCE HANDBOOK

The basic requirement for railroad retirement annuities is at least 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if such service was performed after 1995 Service months need not be conshysecutive

Additional service months may be deemed in some cases where an employee does not actually work in every month of the year For additional service months to be deemed the employeersquos compensation for the year up to the tier II maximum must exceed an amount equal to 112 of the tier II maximum multiplied by the numshyber of service months actually worked

The excess amount is then divided by 112 of the tier II maximum the result rounded up to a whole number equals the maximum number of months that may be deemed as service months for that year The employee must be in an employment relation (on an approved leave of absence) with a covered railroad employer or be an employee representative during a deemed service month An employee may never be credited with more than 12 service months in any calendar year

Except for benefits paid for on-the-job injuries sickness benefits are subject to tier I railroad retirement taxes if paid within 6 months after the month in which the employee last worked They are credited as compensation for tier I benefits but are not credited as service months

Basic Service Requirement for Railroad Retirement Annuities

120 months of creditable railroad service

or

60 months if such service was performed after 1995

PROVISIONS OF THE RAILROAD RETIREMENT ACT 25 CREDITABLE MILITARY SERVICE

Military service may be credited towards retirement benefits under certain conditions To be creditable as compensation under the Railroad Retirement Act service in the US Armed Forces must be preceded by railroad service in the same or preceding calendar year With the excepshytions noted the employee must also have entered active military service when the United States was at war or in a state of national emergency or have served in the Armed Forces involuntarily

If military service began during a war or national emergency period any active duty service the employee was required to continue in beyond the end of the war or national emergency is creditable except that volshyuntary service extending beyond September 14 1978 is not creditable

Railroad workers who voluntarily served in the Armed Forces beshytween June 15 1948 and December 15 1950 when there was no deshyclared national state of emergency in force can be given railroad retireshyment credit for their military service if they performed railroad service in the year they entered or the year before they entered military service and if they returned to rail service in the year their military service ended or in the following year and had no intervening nonrailroad employment

war and national emergency periods

August 2 1990 to date as yet undetermined December 16 1950 to September 14 1978 September 8 1939 to June 14 1948

26 2018 INFORMATIONAL CONFERENCE HANDBOOK

SERVICE AND EARNINGS RECORDS

The RRB maintains a record of all covered railroad service and creditable earnshyings after 1936 The information is recorded under the employeersquos social security account number used by the employer to report service and compensation to the RRB

Each year employees in the industry receive a Certificate of Service Months and Compensation (Form BA-6) from the RRB This statement is important beshycause it provides both a current and cumulative record of an employeersquos railroad service and compensation It inshycludes deemed service months

Each year employees in the industry separation allowances and sevshyreceive a Certificate of Service Months erance payments as well as mis- and Compensation (Form BA-6) fromcellaneous compensation such the RRB which provides both a current

as taxable sickness payments and cumulative record of an employeersquos It also includes the cumulative railroad service and compensationamounts of railroad retirement payroll taxes paid by the employshyee over and above social security equivalent payroll taxes and reflects creditable military service if the service has previously been reported to the RRB Employees are encouraged to carefully review Form BA-6 for accuracy upon receipt

Railroad employees who have already established a Benefit Online Services account at RRBgov can view their individual railroad retirement records of service months and compensation through a feature called View Service amp Compensation History Though this alternative record does not replace Form BA-6 it does make similar information available online This information is only available to employshyees with RRB online accounts

If an employee disagrees with the information shown on Form BA-6 he or she should notify the RRB as early as possible The law limits the period during which

PROVISIONS OF THE RAILROAD RETIREMENT ACT 27 corrections can be made to 4 years When reporting an inaccuracy on Form BA-6 all correspondence must include the employeersquos social security number Employees can mail this information to any RRB field office or to RRB headquarters at

Protest Unit - CESC US Railroad Retirement Board

844 North Rush Street Chicago IL 60611-1275

AGE AND SERVICE DISABILITY AND SUPPLEMENTAL ANNUITIES

The basic requirement for a regular employee annuity is 10 years (120 months) of creditable railroad service or 5 years (60 months) of creditable railroad service if performed after 1995 Benefits then become payable after the employee meets certain other requirements which depend in turn on the type of annuity payable

An AGE AND SERVICE ANNUITY can be paid to

Employees with 30 or more years of creditable service They are eligible for regular annuities based on age and service the first full month they are age 60 Early retirement reductions are applied if the employee first became eligible for a 6030 annuity July 1 1984 or later and retired at ages 60 or 61 before 2002

Employees with 10-29 years of creditable service or 5-9 years if at least 5 years were after 1995 They are eligible for regular annuities based on age and service the first full month they are age 62 Early retirement annuity reductions are applied to annuities awarded before the employeersquos full retirement age as explained on the next page

EMPLOYEE AND SPOUSE ANNUITIES

28 2018 INFORMATIONAL CONFERENCE HANDBOOK

Full retirement age means the age at which an employee can receive full benefits with no reduction for early retirement This ranges from age 65 to age 67 depending upon the year of birth Reduced annuities are still payable at age 62 to those with less than 30 years of service but the maximum reduction is gradually rising to 30 percent from 20 percent by the year 2022 as a result of social security legislation enacted in 1983 Part of the annuity (tier II) is not reduced beyond 20 percent if the employee had any creditable railroad service before August 12 1983 Railroad retirement tiers are explained on pages 33 and 35

The annuities of employees reshytiring after the first full month they are age 60 (for those with 30 years of service) can begin with the first day they are eligible with up to 6 monthsrsquo retroactivity The annuities of employees retiring at or after age 62 with an age reduction (for those with less than 30 years of service) can begin with the first day of the month in which the application is filed

An annuity based on age cannot be paid until the employee stops railroad emshyployment files an application and gives up any rights to return to work for a railshyroad employer

IF EMPLOYEE WAS BORN

FULL RETIREMENT AGE IS

1937 or earlier 65

1938 65 and 2 months

1939 65 and 4 months

1940 65 and 6 months

1941 65 and 8 months

1942 65 and 10 months

1943 through 1954 66 1955 66 and 2 months

1956 66 and 4 months

1957 66 and 6 months

1958 66 and 8 months

1959 66 and 10 months

1960 or later 67

A person attains a given age the day before his or her birthday Consequently someone born on January 1 is considered to have attained his or her given age on December 31 of the previous year

Table 1--Determining Full Retirement Age

PROVISIONS OF THE RAILROAD RETIREMENT ACT 29

A DISABILITY ANNUITY can be paid for

Total disability at any age if an employee is disabled for all regular work and has at least 10 years (120 months) of creditable railroad service Employees with 5-9 years of creditable railroad service if at least 5 years were after 1995 may qualify for tier I only (as defined on page 33) before retirement age on the basis of total disability if they also meet certain social security earnings requirements An age reshyduced tier II amount would be payable at age 62

TOTAL DISABILITY

means a physical or mental disability that prevents any regular employment

Occupational disability at age 60OCCUPATIONAL DISABILITY if an employee has at least 10 years

(120 months) of railroad service or at means an employee is disabled for his or any age if the employee has at leasther regular railroad occupation (generally

the job he or she worked the longest in the 20 years (240 months) of service last 5 years) and the condition is expected when the employee is disabled for his to last at least 12 months or longer or her regular railroad occupation

A current connection with the rail-road industry is also required for an annuity based on occupational rather than total disability

A 5-month waiting period beginning with the month after the month of the onset of disability is required before any disability annuity payments can begin

An employee can be in compensated service while filing a disability annuity application as long as the compensated service is not active service and terminates within 90 days from the date of filing However in order for a supplemental annuity to be paid by the RRB or for an eligible spouse to begin receiving annuity payshyments a disabled annuitant under full retirement age must relinquish employment rights

A SUPPLEMENTAL ANNUITY can be paid at

Age 60 if the employee has at least 30 years of creditable railroad service

Age 65 if the employee has 25-29 years of railroad service

30 2018 INFORMATIONAL CONFERENCE HANDBOOK

In addition to the service requirements a current connection with the railroad industry is required for all supplemental annuities An employee must also be reshyceiving a railroad retirement age and service or disability annuity before a suppleshymental annuity can be paid Eligibility is further limited to employees who had at least one month of creditable rail service before October 1981

CURRENT CONNECTION

An employee who worked for a railroad in at least 12 months in the Once a current connection 30 months immediately preceding is established at the time the

railroad retirement annuity be-the month his or her railroad retire- gins an employee never loses ment annuity begins will meet the it no matter what kind of work current connection requirement for is performed thereafter a supplemental annuity occupationshyal disability annuity or the survivor benefits described later in this chapter (If the employee died before retirement railroad service in at least 12 months in the 30 months before the month of death will meet the current connection requirement for the purpose of paying survivor benefits)

If an employee does not qualify for a current connection on this basis but has 12 months of service in an earlier 30-month period he or she may still meet the current connection requirement This alternative generally applies if the employee did not have any regular employment outside the railroad industry after the end of the last 30-month period which included 12 months of railroad service and before the month the annuity begins or the month of death Full or part-time work for a nonrailroad employer in the interval between the end of the last 30-month period inshycluding 12 months of railroad service and the month an employeersquos annuity begins or the month of death if earlier can break a current connection

Self-employment in an unincorporated business will not break a current conshynection however self-employment can break a current connection if the business is incorporated

Working for certain US Government agencies--Department of Transportashytion National Transportation Safety Board Surface Transportation Board Transshy

PROVISIONS OF THE RAILROAD RETIREMENT ACT 31

portation Security Administration National Mediation Board Railroad Retirement Board--will not break a current connection State employment with the Alaska Railshyroad as long as that railroad remains an entity of the State of Alaska will not break a current connection Also railroad service in Canada for a Canadian railroad will neither break nor preserve a current connection

A current connection can also be maintained for purposes of supplemental and survivor annuities but not for an occupational disability annuity if the employee completed 25 years of railroad service was involuntarily terminated without fault from his or her last job in the railroad industry and did not thereafter decline an offer of employment in the same class or craft in the railroad industry regardless of the distance to the new position A termination of railroad service is considered volshyuntary unless there was no choice available to the individual to remain in service Generally where an employee has no option to remain in the service of his or her railroad employer the termination of the employment is considered involuntary reshygardless of whether the employee does or does not receive a separation allowance However each case is decided by the RRB on an individual basis This exception to the normal current connection requirements became effective October 1 1981 but only for employees still living on that date who left the rail industry on or after October 1 1975 or who were on leave of absence on furlough or absent due to injury on October 1 1975

SPOUSE ANNUITIES

The age requirements for a spouse annuity depend on the employeersquos bull age and date of retirement bull years of railroad service

Retired employee age 60 with 30 years of service

If a retired employee with 30 years of service is age 60 the employeersquos spouse is also eligible for an annuity the first full month the spouse is age 60 Certain early retirement reductions are applied if

the employee first became eligible for a 6030 annuity July 1 1984 or later and reshytired at ages 60 or 61 before 2002 If the employee was awarded a disability annuity has attained age 60 and has 30 years of service the spouse can receive an unreduced

32 2018 INFORMATIONAL CONFERENCE HANDBOOK

annuity the first full month she or he is age 60 regardless of whether the employee annuity began before or after 2002 as long as the spousersquos annuity beginning date is after 2001

If a retired employee with less than 30 years of service is age 62 the employeersquos spouse is also elishygible for an annuity the first full month the spouse is age 62 Early retirement reductions are applied to the spouse annuity if the spouse retires prior to her or his full retirement age Full reshytirement age for a spouse is gradually rising to age 67 just as for an employee depending on the year of birth Reduced benefits are still payable at age 62 but the maximum reduction will be 35 percent rather than 25 percent by the year 2022 The tier II portion of a spouse annuity (as defined on page 35) is not reduced beyond 25 percent if the employee had any creditable railroad service before August 12 1983

A spouse of an employee receiving an age and service annuity (or a spouse of a disability anshynuitant who is otherwise eligible for an age and service annuity) is eligible for a spouse annuity at any age if he or she is caring for the employshy

eersquos unmarried child under age 18 The spouse is also eligible if caring for the emshyployees disabled child of any age who became disabled before age 22

The employee must have been married to the spouse for at least 1 year unless the spouse is the natural parent of their child or the spouse was eligible or potentialshyly eligible for a railroad retirement widow(er)rsquos parentrsquos or disabled childrsquos annushyity in the month before marrying the employee or the spouse was previously marshyried to the employee and received a spouse annuity A spouse of an employee is not eligible for railroad retirement benefits based solely on the spouses own disability

An annuity may also be payable to the dishyvorced wife or husband of a retired employee if their marriage lasted for a period of at least 10 years immediately before the date the divorce beshycame final both have attained age 62 for a full month and the divorced spouse is not currently married The amount of a divorced spousersquos annuity is in effect equal to what social security would pay in the same situation and therefore less

Retired employee age 62 with less than 30 years of service

Spouse of an age and service employee caring for the em-ployeersquos unmarried child

Divorced spouse if marriage lasted for at least 10 years

PROVISIONS OF THE RAILROAD RETIREMENT ACT 33

than the amount of the spouse annuity otherwise payable (tier I only) A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for a period of not less than 2 years the employee and forshymer spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings Also a court-ordered partition payment may be paid even if the employee is not entitled to an annuity provided that the employee has 10 years of railroad service or 5 years after 1995 and both the employee and former spouse are 62

ANNUITY ESTIMATES

Railroad employees with RRB online accounts can get estimates of future anshynuities for themselves and their spouses via the Benefit Online Services section of RRBgov Instructions for establishing an online account are available by clicking on the link for requesting a Password Request Code (PRC) in that same section The estimates are based on the service and earnings records maintained by the RRB and show the earliest date the employee can receive a full annuity and if applicable the earliest date he or she can receive a reduced annuity Employees can also contact any RRB field office to request annuity estimates with approximate figures Estishymates can only be furnished for employees with at least 10 years of railroad service or 5 years of service after 1995 it is not possible to provide a precise amount if the employee is not currently eligible

TWO-TIER ANNUITIES AND DUAL BENEFITS

Regular railroad retirement annuities are calculated under a two-tier formula The annuity formula components for employees and spouses are described later in this chapter

The FIRST TIER is based on railroad retirement credits and any social security credits an employee has acquired The amount of the first tier is calculated using social security formulas but with railroad retirement age and service requirements

(Text continues on page 35)

34 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 2--Fiscal year 2017 annuity awards to 30-year employees retiring before full retirement age

AVERAGE AWARD

AVERAGE YEARS OF SERVICE

Employee $4079 372

Employee and spouse 5701 374

Note--For employees with at least 25 years of service and a current conshynection a supplemental annuity may be payable The supplemental annuity amount is $23 plus $4 for each year of service over 25 years up to a maxshyimum of $43 for employees with 30 or more years of service Figures in the tables on this page include supplemental annuity amounts

Table 3--Fiscal year 2017 annuity awards based on service averaging less than 30 years

AVERAGE AVERAGE YEARS AWARD OF SERVICE

Employee full retirement age or over $2557 213

Employee full retirement age or over and spouse 3631 234

Employee under full retirement age with less than 30 years of service 1845 159

Employee under full retirement age with less than 30 years of service and spouse 2549 162

Employee retiring because of disability 2726 209

PROVISIONS OF THE RAILROAD RETIREMENT ACT 35

The SECOND TIER is based on railroad retirement credits only and may be compared to the retirement benefits paid over and above social security benefits to workers in other industries

An additional amount may also be payable as part of the regular annuity if an employee qualified for both railroad retirement and social security benefits before 1975 and met certain vesting requirements

Employees with Railroad Retirement and Social Security Benefits If a retired or disabled railroad retirement annuitant is also awarded social secushy

rity benefits the Social Security Administration determines the amount of the social security benefit due The RRB then issues a combined monthly benefit payment after the railroad retirement annuity (tier I only) has been reduced by the amount of the social security benefit

The tier I portion of an employee annuity is based on his or her combined railshyroad retirement and social security credits figured under social security formulas and approximates what social security would pay if railroad work were covered by that system It is reduced by the amount of any actual social security benefit paid on the basis of the employeersquos nonrailroad employment in order to prevent a duplicashytion of benefits based on social security-covered earnings The tier I amount is also reduced in the event a social security benefit is payable to the employee on the basis of another personrsquos earnings This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time An annuitant is required to advise the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase (other than for a cost-of-living increase)

If an employee qualified for dual benefits before 1975 and met certain vesting requirements he or she can receive an additional annuity amount which offsets in part the dual benefit reduction This additional amount which reflects the dual benefits payable prior to 1975 is called the vested dual benefit payment The vested dual benefit cannot be paid prior to the date the employee could begin to receive a social security benefit if he or she were to file for such a benefit

36 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employees who worked for a railroad in 1974 and retired after 1974 are conshysidered vested if on December 31 1974 they had both at least 10 years of railroad service and sufficient quarters of coverage to qualify for a social security retireshyment benefit at age 62 Employees qualified on this basis are eligible for vested dual benefit amounts computed on their railroad and social security credits through December 31 1974

Employees who did not work for a railroad in 1974 but had 25 Limitations on or more years of railroad service Vested Dual Benefitsbefore 1975 or employees with 10 years of railroad service before Vested dual benefit payments are 1975 who had either a current conshy funded by annual appropriations from

general US Treasury revenues These nection with the railroad industry appropriations account for less than one on December 31 1974 or at the percent of total financing sources for the

time their annuities began are also railroad retirement system considered vested under the same Payment of vested dual benefits is deshyconditions as persons who were pendent on the time and amount of such

appropriations If the appropriation in a railroad employees in 1974 fiscal year is for less than the estimated

Other employees who comshy total vested dual benefit payments indishyvidual payments must be reduced pleted 10 or more years of railroad

service before 1975 but left the inshydustry before 1974 are considered vested only if they had sufficient social security quarters of coverage to qualify for a social security retirement benefit as of the end of the year before 1974 in which they left the railroad industry Their vested dual benefit amount is based only on credits acquired through their last year of pre-1975 railroad service instead of through December 31 1974

Employees who do not qualify for a vested dual benefit may be eligible for a refund of any excess social security taxes they paid (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 37

Employees with Public Non-Profit or Foreign Pensions For employees first eligible for a railroad retirement annuity and a Federal

State or local government pension after 1985 there may be a reduction in the tier I amount for receipt of a public pension based in part or in whole on employment not covered by social security or railroad retirement after 1956 This may also apshyply to certain other payments not covered by railroad retirement or social security such as payments from a nonprofit organization a foreign government or a foreign employer This does not include military service pensions payments by the Departshyment of Veterans Affairs or certain benefits payable by a foreign government as a result of a totalization agreement between that government and the United States

Workersrsquo Compensation If an employee is receiving a disability annuity the tier I portion may under

certain circumstances be reduced for receipt of workersrsquo compensation or public disability benefits

If an annuitant becomes entitled to any pensions or benefits as described above the RRB must be notified immediately

SPOUSES WITH DUAL BENEFITS

Social Security Benefits The tier I portion of a spouse annuity is reduced for any social security entitleshy

ment regardless of whether the social security benefit is based on the spousersquos own earnings the employeersquos earnings or the earnings of another person This reduction follows principles of social security law which limit payment to the higher of any two or more benefits payable to an individual at one time

Public Pensions The tier I portion of a spouse annuity may also be reduced for receipt of any

Federal State or local government pension separately payable to the spouse based

38 2018 INFORMATIONAL CONFERENCE HANDBOOK

on the spousersquos own earnings The reduction generally does not apply if the emshyployment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For spouses subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

Employee Annuity If both individuals in a marriage are railroad employees and both started railroad

employment after 1974 the amount of any spouse or divorced spouse annuity is reshyduced by the amount of the employee annuity to which the spouse is also entitled

If either one had some railroad service before 1975 the spouse tier I amount is reduced by the amount of the railroad employee tier I to which the spouse is entitled and that initial reduction is restored in the spouse tier II amount The spouse tier I amount cannot be reduced below zero

MINIMUM GUARANTY

Under a special minimum guaranty provision railroad families will not reshyceive less in monthly benefits than they would have if railroad earnings were covered by social security rather than railroad retirement laws This guaranty is intended to cover situations in which one or more members of a family would otherwise be eligible for a type of social security benefit which is not provided unshyder the Railroad Retirement Act

For example social security provides childrenrsquos benefits when an employee is totally disabled retired or deceased The Railroad Retirement Act only provides childrenrsquos benefits if the employee is deceased Therefore if a retired rail employee has children who would otherwise be eligible for a benefit under social security the employeersquos annuity would be increased to reflect what social security would pay the family unless the annuity is already more than that amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 39

COST-OF-LIVING INCREASES IN EMPLOYEE AND SPOUSE RETIREMENT BENEFITS

After retirement the tier I portions of both employee and spouse annuities are generally increased for higher living costs at the same time and by the same pershycentage as social security benefits These increases effective December 1 and inshycluded in the January payment are based on the rise in the Consumer Price Index from the third quarter of the last year a cost-of-living adjustment became effective to the corresponding period of the current year Generally if the Index increases by five percent for example the tier I portion increases by five percent Under certain circumstances the increase can be based on average national wage increases rather than price increases

If an annuitant is receiving both railroad retirement and social security benefits the increased tier I portion is reduced by the increased social security benefit

The tier II portions of retired employee and spouse annuities are normally inshycreased by 325 percent of the increase in the Consumer Price Index

Tier II cost-of-living increases are generally payable at the same time as tier I cost-of-living increases Vested dual benefit payments and supplemental annuities are not increased by these cost-of-living adjustments

WORKING AFTER RETIREMENT

Neither a regular annuity a supplemental annuity nor a spouse annuity is payshyable for any month in which a retired employee regardless of age works for an employer covered under the Railroad Retirement Act including labor organizashytions However service for less than $25 a month to a local lodge will not prevent payment of the annuity for that month Regardless of the amount of salary work by a local lodge or division secretary collecting insurance premiums is considered railroad work and therefore no annuity is payable for any month in which such activity occurs

40 2018 INFORMATIONAL CONFERENCE HANDBOOK

Retired employees and spouses who work for their last pre-retirement nonrailshyroad employer are subject to an earnings deduction Last pre-retirement nonrailroad employment is employment that continues through the annuity beginning date or ended within 6 months of the annuity beginning date Such employment will reduce tier II benefits and supplemental annuity payments which are not otherwise subject to earnings deductions by $1 for each $2 of earnings received subject to a maxishymum reduction of 50 percent These reductions continue after full retirement age Work that begins on the same day as the annuity beginning date is not last pre-reshytirement nonrailroad employment

Retired employees and spouses who have not yet attained full social security retirement age which ranges from age 65 for those born before 1938 to age 67 for those born in 1960 or later may also be subject to additional earnings deductions for any earnings in or outside the rail industry that exceed certain exempt amounts The tier I and vested dual benefits of these employee and spouse annuities are subshyject to deductions if earnings exceed the exempt amounts applicable to social secushyrity beneficiaries Prior to the calendar year in which full social security retirement age is attained the deduction is $1 in benefits for every $2 of annual earnings exshyceeding an exempt amount ($17040 in 2018)

If the employee or spouse has a tier I reduction for social security benefits the tier I benefit is not reduced for excess earnings

In the first year in which an employee subject to these earnings deductions is both entitled to an annuity and has a non-work month a full tier I and vested dual benefit can be paid for those months in which the employee had low earnings or did not have substantial self-employment no matter what total earnings for the year were A non-work month is one in which the employee neither earns over 112th of the annual exempt amount nor has substantial self-employment Non-work months can be claimed in only one calendar year which need not necessarily be the first year of entitlement

In the calendar year in which an individual attains full social security retirement age deductions of $1 are made in tier I and vested dual benefits for every $3 earned in excess of an exempt amount ($45360 in 2018) but only counting those earnings in the months prior to the month full retirement age is attained These tier I and

PROVISIONS OF THE RAILROAD RETIREMENT ACT 41

vested dual benefit deductions stop effective with the month full retirement age is attained

Earnings received for services rendered plus any net earnings from self-emshyployment are considered when assessing deductions for earnings Interest divishydends certain rental income or income from some stocks bonds or other investshyments are not generally considered earnings for this purpose

Annuitants under full retirement age who work after retirement and expect that their earnings for a year will be more than the annual exempt amount must promptshyly notify the RRB and furnish an estimate of their expected earnings in order to prevent an overpayment and penalties They should also notify the RRB if their original estimate changes significantly Annuitants should report final earnings by April 15 of the following year

Retired employees and spouses who return to work for a railroad or for their last pre-retirement nonrailroad employer must notify the RRB regardless of earnings or age

A spouse benefit is subject to reductions not only for the spousersquos earnings but also for the earnings of the employee regardless of whether the earnings are from service for the last pre-retirement nonrailroad employer or other post-retirement employment

A spouse annuity is not payable for any month in which the employeersquos annuity is not payable or for any month in which the spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse annuity is not payable for any month in which the divorced spouse regardless of age works for an employer covered under the Railroad Retirement Act A divorced spouse can receive an annuity even if the employee has not retired provided they have been divorced for at least 2 years the employee and former spouse are at least age 62 and the employee is fully insured under the Social Security Act using combined railroad and social security earnings

Disability Work Restrictions If an annuity is based on disability there

A disability annuitant must report anyearnings

42 2018 INFORMATIONAL CONFERENCE HANDBOOK

are certain work restrictions that can affect payment depending on the amount of earnings The annuity is not payable for any month in which the disabled employee annuitant works for an employer covered under the Railroad Retirement Act The annuity is not payable for any month in 2018 in which the disabled employee anshynuitant earns over $920 in any employment or net self-employment exclusive of disability-related work expenses Withheld payments will be restored if earnings for the year are less than $11500 after deduction of disability-related work expenses Failure to report such earnings could involve a significant penalty charge

These disability work restrictions cease upon a disabled employee annuitantrsquos attainment of his or her full retirement age This transition is effective no earlier than full retirement age even if the annuitant had 30 years of service Earnings deshyductions continue to apply to those working for their last pre-retirement nonrailroad employer

If a disabled employee annuitant works before his or her full retirement age this may also raise a question about the possibility of that individualrsquos recovery from disability regardless of the amount of earnings Consequently any work activity must be reported promptly to avoid overpayments which are recoverable by the RRB and may also include significant penalties

WHEN ANNUITIES STOP

Payment of any annuity stops upon the annuitantrsquos death and the annuity is not payable for any day in the month of death

A disability annuity stops after the employee recovers from the disability it can be reinstated if the disabling condition recurs

A spouse annuity stops if the employeersquos annuity terminates or the spouse anshynuity was based on caring for a child and the child is no longer under age 18 or disabled or the child is no longer in the spousersquos care However the spouse annuity may continue if she or he is qualified without the child or it can resume when the spouse attains a qualifying age

While a divorce ends eligibility for a spouse annuity a divorced spouse may

PROVISIONS OF THE RAILROAD RETIREMENT ACT 43 under conditions described previously qualify for a divorced spousersquos annuity

A divorced spousersquos annuity stops upon remarriage or upon entitlement to a social security benefit based on her or his own earnings if the unreduced social seshycurity benefit is equal to or greater than one-half of the employeersquos unreduced tier I amount A divorced spousersquos annuity may be reduced or stopped if the divorced spouse is also entitled to a railroad retirement annuity

Annuities are payable to surviving widow(er)s children and certain other deshypendents Lump-sum benefits are payable after the death of a railroad employee only if there are no qualified survivors of the employee immediately eligible for monthly annuities With the exception of a residual lump-sum death benefit elishygibility for survivor benefits depends on whether or not the employee was insured under the Railroad Retirement Act at the time of death

An employee is insured if he or she has at least 10 years (120 months) of railshyroad service or 5 years (60 months) performed after 1995 and a current connection with the railroad industry as of the month the annuity begins or the month of death whichever occurs first The current connection requirement is described earlier in this chapter

It is important to notify the Railroad Retirement Board promptly if one of the above changes occurs Failure to report can result in an overpayment which the RRB will take action to recover sometimes with interest or penalshyties Failure to report changes promptly or making a false statement can also result in a fine or imprisonment

SURVIVOR BENEFITS

survivor annuities are payable to

widow(er)s surviving divorced spouses remarried widow(er)s unmarried children parents

44 2018 INFORMATIONAL CONFERENCE HANDBOOK

If a deceased employee was not so insured jurisdiction of any survivor benefits payable is transferred to the Social Security Administration and any survivor benshyefits are paid by that agency instead of the RRB Regardless of which agency has jurisdiction the deceased employeersquos railroad retirement and social security credits will be combined for the purpose of benefit computations

WIDOWSrsquo AND WIDOWERSrsquo ANNUITIES

Widowsrsquo and widowersrsquo annuities are payable at

Age 60 age reductions are applied to annuities awarded before full retirement age The eligibility age for unreduced annuities is gradually rising from age 65 to age 67 depending on the year of birth

Ages 50-59 if the widow(er) is totally disabled and unable to work in any regushylar employment The disability must have begun within 7 years after the employeersquos death or within 7 years after the termination of an annuity based on caring for a child of the deceased employee In most cases a 5-month waiting period is required after the onset of disability before a disability annuity can begin

Any age if the widow(er) is caring for an unmarried child of the deceased employee under age 18 or a disabled child of any age who became disabled before age 22

Generally the widow(er) must have been married to the employee for at least 9 months prior to death unless she or he was the natural or adoptive parent of their child the employeersquos death was accidental or while on active duty in the US Armed Forces the widow(er) was potentially entitled to certain railroad retirement or social security benefits in the month before the month of marriage or the marshyriage was postponed due to State restrictions on the employees prior marriage and divorce due to mental incompetence or similar incapacity

Survivor annuities may also be payable to a surviving divorced spouse or re-married widow(er) Benefits are limited to the amount social security would pay and therefore are less than the amount of the survivor annuity otherwise payable

(Text continues on page 47)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 45

Table 4--Number and average amount of benefits awarded under the Railroad Retirement Act fiscal year 2017

AVERAGE TYPE OF BENEFIT NUMBER AMOUNT

MONTHLY BENEFITS

Full retirement age or over 1800 $2550

Less than full retirement age Unreduced 4900 4049 Reduced 2400 1845 Age retirements total 9100 3159

Disability retirements 1600 2723 Regular employee annuities total 10700 3095

Supplemental employee annuities1 5200 41

Unreduced spouse annuities 7300 1269

Reduced spouse annuities 2700 548

Divorced spouse annuities 700 669 Spouse and divorcedspouse annuities total 10800 1047

Aged widow(er)s 5500 2113

Disabled widow(er)s 100 1752

Widowed mothers and fathers 100 1806

Remarried widow(er)s 100 1189

Divorced widow(er)s 700 1209

Children 400 1368

Parents2 844 Survivor annuities total 6900 1948

Total3 33500

LUMP-SUM BENEFITS

Lumpshysum death payments 2500 $933

Residual payments2 1040

Total 2500

1 Averages are after courtshyordered partitions 2 Fewer than 50 3 Excludes partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Note--Detailed figures may not add to totals shown because of rounding

46 2018 INFORMATIONAL CONFERENCE HANDBOOK

Table 5--Number and average amount of monthly benefits under the Railroad Retirement Act in current payment status

on September 30 2017

TYPE OF BENEFIT NUMBER AVERAGE AMOUNT

Full retirement age or over Less than full retirement age Unreduced Reduced Age retirements total

Disability retirements1

Under full retirement age Full retirement age and over Regular employee annuities total Supplemental employee annuities2

Unreduced spouse annuities Reduced spouse annuities Divorced spouse annuities Spouse and divorcedspouse annuities total

Aged widow(er)s Disabled widow(er)s Widowed mothers and fathers

Remarried widow(er)s Divorced widow(er)s Children Parents3

Survivor annuities total Partition payments4

Total

21300

107400 61700 190300

46200 28000 264500

122100 96300 45500 5100

146900

87800 3500

600 3000 9700 8500 113200 1700

648300

$2131

3487 1621

2731

2401 2691 2669

42

1261

514

632

1008

1664

1326

1878

1071

1078

1078

907 1544

315

1 Full retirement age also known as normal retirement age is gradually increasing from age 65 to age 67 over a 22shyyear period For those born 121943shy111955 the normal retirement age is 66 Annuities to disability retirees at full retirement age and over are payable as age annuities 2 Averages are after courtshyordered partitions 3 Fewer than 50 4 Limited to partition payments to spouses and divorced spouses where the employee is deceased or not otherwise entitled to an annuity Partition payments from employees on the rolls are included with the employees annuities Note--Detailed figures may not add to totals shown because of rounding

PROVISIONS OF THE RAILROAD RETIREMENT ACT 47

However a former spouse may be paid a court-ordered partition amount even after the employees death

A surviving divorced spouse may qualify if she or he was married to the emshyployee for a period of at least 10 years immediately before the date the divorce became final is unmarried or remarried under the conditions described in the next paragraph and is age 60 or older (50 if disabled) A surviving divorced spouse who is unmarried can qualify at any age if caring for the employeersquos child and the child is under age 16 or disabled in which case the 10-year marriage requirement does not apply

The portion of a survivor annuity equivalent to a social security benefit (tier I) may be paid to a widow(er) or surviving divorced spouse who remarries after age 60 or to a disabled widow(er) or disabled surviving divorced spouse who remarries after age 50 however remarriage prior to age 60 (or age 50 if disabled) would not prevent eligibility if such remarriage ends Such social security level benefits may also be paid to a younger widow(er) or surviving divorced spouse caring for the employeersquos child who is under age 16 or disabled if the remarriage is to a person entitled to railroad retirement or social security benefits or the remarriage ends

OTHER SURVIVOR ANNUITIES

Other survivor annuities are payable to

An unmarried child under age 18

An unmarried child age 18 in full-time attendance at an elementary or sec-ondary school or in approved homeschooling until the student attains age 19 or the end of the school term in progress when the student attains age 19 In most cases where a student attains age 19 during the school term benefits are limited to the 2 months following the month age 19 is attained These benefits will be terminated earlier if the student marries graduates or ceases full-time attendance

An unmarried disabled child over age 18 if the child became totally disabled before age 22

An unmarried dependent grandchild meeting any of the requirements deshyscribed above for a child if both the grandchildrsquos parents are deceased or disabled

48 2018 INFORMATIONAL CONFERENCE HANDBOOK

A parent at age 60 who was dependent on the employee for at least half of the parentrsquos support If the employee was also survived by a widow(er) surviving dishyvorced spouse or child who could ever qualify for an annuity the parentrsquos annuity is limited to the amount that social security would pay (tier I)

SURVIVOR ANNUITY ESTIMATES

Survivors can call the agency toll-free (1-877-772-5772) to speak with a field service representative and request an annuity estimate Active or retired employees who are concerned about the amount of benefits which would be payable to their survivors may also receive estimates from field service staff Pre-retirement counshyseling is also available by appointment at any RRB field office

The following information may be helpful in providing an idea of the amount of potential survivor benefits

The average annuity awarded to widow(er)s in fiscal year 2017 excluding reshymarried widow(er)s and surviving divorced spouses was $2103 a month On the average children received $1368 a month while total family benefits for widshyow(er)s with children averaged $4189 a month The average annuity awarded to remarried widow(er)s or surviving divorced spouses in fiscal year 2017 was $1206 a month

SURVIVOR ANNUITY TIERS

Survivor annuities like retirement annuities consist of tier I and tier II components

Based on deceased employeersquos combined railroad retirement and TIER I social security credits and generally equivalent to the amount

that would be payable under social security

Percentages of deceased employeersquos tier II amount (similar to TIER II a private pension tier II benefit is based on employees railroad

earnings and service months)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 49

Survivor annuity amounts may also be determined under certain minimum proshyvisions which guarantee that a widow(er)rsquos annuity will be at least equal to the two-tier benefit the deceased employee would have received at the time of the award of the widow(er)rsquos annuity minus certain reductions including those for age and receipt of social security benefits and no less than the spouse annuity she or he was receiving just prior to the employeersquos death

SURVIVORS WITH DUAL BENEFITS

Social Security Benefits The tier I portion is reduced by the amount of any social security benefits reshy

ceived by a survivor annuitant whether the social security benefits are based on the survivorrsquos own earnings or those of another individual This reduction follows the principles of social security law which in effect limit payment to the higher of any two or more benefits payable to an individual at one time When both railshyroad retirement annuities and social security benefits are payable they are genershyally combined into a single payment issued through the RRB A survivor annuitant must notify the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase other than for a cost-of-living increase

Public Pensions The tier I portion of a widow(er)rsquos annuity may be reduced for receipt of any

Federal State or local government pension based on the widow(er)rsquos own earnings The reduction generally does not apply if the employment on which the pension is based was covered under the Social Security Act throughout the last 60 months of public employment

Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction Pensions paid by a foreign government or intershystate instrumentality will also not cause a reduction For those subject to a public pension reduction the tier I reduction is equal to 23 of the amount of the public pension

50 2018 INFORMATIONAL CONFERENCE HANDBOOK

Employee Annuity If a widow(er) is also entitled to a railroad retirement employee annuity and

both the widow(er) and the deceased employee started railroad employment after 1974 the survivor annuity (tier I and tier II) payable to the widow(er) is reduced by the full amount of the widow(er)s own employee annuity

If a widow or dependent widower is also a railroad employee annuitant and either the widow(er) or the deceased employee had 120 months of railroad service before 1975 the tier I reduction may be partially restored in the survivor tier II amount

If either the deceased employee or the survivor annuitant had some railroad service before 1975 but less than 10 years of service the widow(er)s own employshyee annuity and the tier II portion of the survivor annuity would be payable to the widow(er) The tier I portion of the survivor annuity would be payable only to the extent that it exceeds the tier I portion of the widow(er)s own employee annuity

COST-OF-LIVING INCREASES IN SURVIVOR ANNUITIES

Cost-of-living increases effective December 1 and included in the January payshyment are made on the basis of increases in national prices or in some circumstancshyes average national wages and calculated the same way as cost-of-living increases in employee and spouse annuities

However in the case of widow(er)srsquo annuities computed on the basis of the inishytial minimum amount provided under 2001 legislation the monthly payment will not increase until the amount payable under previous law plus subsequent cost-ofshyliving increases is higher than the initial minimum amount

PROVISIONS OF THE RAILROAD RETIREMENT ACT 51

A survivor annuity is not payable for any month the survivor works for an employer covered under the Railshyroad Retirement Act regardless of the survivorrsquos age

Survivors who are receiving social security benefits have their railroad retirement annuity and social secushyrity benefit combined for earnings limitations purposes Prior to the calshyendar year in which full retirement age is attained there is a deduction of $1 in benefits for every $2 earned over an exempt amount ($17040 in 2018) The deduction is $1 for every $3 earned over an exempt amount ($45360 in 2018) for the months in the calendar year in which the indishyvidual attains full retirement age up

to the month of attainment Work deductions stop effective with the month full retirement age is attained In the first year in which a survivor is both entitled to an annuity and has a nonshywork month a full annuity can be paid for those months in which the survivor had low earnings or did not have substantial selfshyemployshyment no matter what total earnings for the year were

These earnings restrictions do not apply to disabled widow(er)s unshyder age 60 or to disabled children However any work or earnings by a disability annuitant must be reportshyed and are reviewed to determine whether they indicate recovery from the disability

WORK AND EARNINGS What are the limitations

As work and earnings may affect the payment of an annuity they must be reported promptly to the RRB in orderto prevent potential overpayments

52 2018 INFORMATIONAL CONFERENCE HANDBOOK

WHEN SURVIVOR PAYMENTS STOP

All survivor payments stop upon death no annuity is payable for the month of death

A widow(er)rsquos annuity will be reduced upon remarriage and in some cases payshyment will be prevented A widow(er)rsquos surviving divorced spousersquos and remarried widow(er)rsquos annuity could also end upon entitlement to another survivor or spouse annuity under the Railroad Retirement Act which is greater than the widow(er)rsquos annuity

A surviving divorced spousersquos or remarried widow(er)rsquos annuity could stop when entitled to a social security benefit which equals or exceeds the deceased emshyployeersquos basic tier I amount and reduces the annuity amount to zero

A widow(er)rsquos remarried widow(er)s or surviving divorced spousersquos annuity which is based on a child in care will end if the child is no longer in the personrsquos care the childrsquos eligibility ceases or in most situations remarriage occurs Providshyed the child in care is not disabled this type of annuity also ends when the child reaches age 18 (for widow(er)s) or age 16 (for remarried widow(er)s and surviving divorced spouses)

A childrsquos or grandchildrsquos annuity will stop if he or she marries reaches age 18 or recovers from the disability upon which his or her annuity was based If the child is 18 and a full-time elementary or high school student the annuity stops when full-time attendance ceases at graduation or upon attainment of age 19 In most cases when a student attains age 19 during the school term benefits are extended to the 2 months following the month age 19 is attained

An annuity will stop if it was based on disability and the beneficiary recovers from the disability before age 60 A disability annuity can be reinstated if the disshyability recurs within 7 years and the widow(er) is still under age 60

A parentrsquos survivor annuity may stop upon remarriage in certain cases a remarshyried parent is entitled to a tier I benefit

Any of the above occurrences must be reported promptly to the RRB in order to prevent an overpayment

PROVISIONS OF THE RAILROAD RETIREMENT ACT 53

LUMP-SUM DEATH BENEFITS

A lump-sum death benefit is payable to certain survivors of an employee with 10 or more years of railroad service or less than 10 years if at least 5 years were after 1995 and a current connection with the railroad indusshytry if there is no survivor immedishyately eligible for a monthly annuity

A lump-sum death benefit may be payable if there is no survivor immediatelyeligible for monthly bene-fits

upon the employeersquos death

If the employee did not have 10 years of service before 1975 the lump sum is limited to $255 and is payable only to the widow(er) living in the same household as the employee at the time of the employeersquos death

If the employee had less than 10 years of service but had 5 years after 1995 he or she must have met social securityrsquos insured status requirements for the lump sum to be payable

If the employee had 10 years of service before 1975 the lump sum is payable to the living-with widow(er) If there is no such widow(er) the lump sum may be paid to the funeral home or the payer of the funeral expenses These lump sums averaged $1010 in fiscal year 2017

If a widow(er) is eligible for monthly benefits at the time of the employeersquos death but the widow(er) had excess earnings deductions which prevented annuity payments or for any other reason did not receive monthly benefits in the 12-month period beginning with the month of the employeersquos death totaling at least as much as the lump sum the difference between the lump-sum benefit and monthly benefits actually paid if any is payable in the form of a deferred lump-sum benefit

The average for all types of lump sums was $933 in fiscal year 2017

The railroad retirement system also provides under certain conditions a resid-ual lump-sum death benefit which ensures that a railroad family receives at least as much in benefits as the employee paid in railroad retirement taxes before 1975 This benefit is in effect a refund of an employeersquos pre-1975 railroad retirement taxes

54 2018 INFORMATIONAL CONFERENCE HANDBOOK

after subtraction of any benefits previously paid on the basis of the employeersquos sershyvice This benefit is seldom payable

APPLYING FOR AN ANNUITY

Applications for railroad retirement or survivor benefits are generally filed at one of the RRBrsquos field offices with a traveling RRB representative at a customer outreach program service location or by telephone and mail The RRB accepts applications up to 3 months in advance of an annuity beginning date which allows the agency to complete the processing of most new claims by a personrsquos retirement date An employee can be in compensated service while filing a disability applishycation provided that the compensated service is not active service and terminates within 90 days from the date of filing When an employee files a disability applishycation while still in compensated service it will be necessary for the employee to provide a specific ending date of the compensation Compensated service includes not only compensation with respect to active service performed by an employee for an employer but also includes pay for time lost wage continuation payments cershytain employee protection payments and any other payment for which the employee will receive additional creditable service

Persons applying for railroad retirement benefits will be required to enroll in either the Direct Deposit program which electronically transfers payments into an individualrsquos checking or savings account or the US Department of the Treasuryrsquos Direct Express program which electronically transfers Federal payments to an inshydividualrsquos Direct Express-issued Debit MasterCardreg Enrollment waivers are availshyable only under very limited conditions

RETIREMENT AND SURVIVOR INFORMATION

Retroactivity of a retirement annuity application is limited to 1 year for disability annuities and 6 months for full age annuities There is generally no retroactivity for reduced age annuities

PROVISIONS OF THE RAILROAD RETIREMENT ACT 55

Applicants for railroad retirement-survivor benefits can check with an RRB field office as to when they can expect their first payment Customer service stanshydards and progress reports are available at RRBgov and in field offices

To expedite filing applicants should contact an RRB field office to schedule a pre-retirement consultation with field staff who will review benefit requirements and answer questions Certain documents are required when filing a railroad retireshyment annuity application including

For employees and spouses

bull Proof of an employeersquos age

bull Proof of any military service

bull Proof of marriage if the spouse is eligible or will shortly become eligible for a spouse annuity A divorced spouse must furnish proof of divorce from the employee

bull Proof of the spousersquos or divorced spousersquos age

bull Proof of a childrsquos relationship and age if the spouse is applying for an annuity based on caring for the employeersquos child

bull Information about any public service pension for which the applicant qualifies

bull Banking information for Direct Deposit of benefit payments (needed at time application is filed)

A photocopy of a record is not accepted as an official document To avoid a delay in application processing any proof submitted must be an orig-inal or certified copy

56 2018 INFORMATIONAL CONFERENCE HANDBOOK

The best proof of age is a certified copy of a civil or church document recordshyed at or close to the time of birth The best proof of marriage is a certified copy of the public or church record or the original marriage certificate A divorced spouse would be expected to furnish a certified copy of the final divorce decree Proof of military service may be a certificate of discharge or any official military record that shows the dates of service

Employees are encouraged to file proofs of age and especially of any military service well in advance of retirement in order to expedite the annuity application process and avoid delays resulting from inadequate proofs

Applicants for disability annuities are required to submit supporting medical inshyformation and should have as much medical documentation and information availshyable as possible at the time of filing They are sometimes asked to take a special medical examination given by a doctor designated by the RRB

An annuity is effective as of the first full month throughout which the employee andor spouse is age 60 with 30 years of service or age 62 in the case of reduced annuities with less than 30 years of service An annuity is effective the first day of the month full retirement age is attained in the case of unreduced annuities with less than 30 years of service

Any social security benefits due the retired employee or family member which begin after 1974 are paid through the RRB Even though the RRB processes payshyment the Social Security Administration is responsible for all adjudication

For survivors

A widow(er) must furnish proof of age proof of marriage and proof of the employeersquos death A surviving divorced spouse must furnish proof of divorce from the employee If applying for a disability annuity the widow(er) must also provide supporting medical evidence A parent must furnish proof of relationship to the emshyployee and proof of support from the employee

PROVISIONS OF THE RAILROAD RETIREMENT ACT 57

If children are eligible for benefits proof of the relationship and age of each child is needed If a child is over age 18 and disabled supporting medical evidence is required Eighteen-year-old students must provide proof of full-time elementary or high school attendance A stepchild of the employee must furnish proof of depenshydency on the employee

Retroactivity of a survivor annuity application is 1 year for disabled widow(er)s and 6 months for full retirement age widow(er)s mothers (fathers) children and parents Retroactivity for widow(er)s ages 60shy61 is 6 months if it does not increase the age reduction (this does not apply to surviving divorced spouses or remarried widow(er)s) Otherwise there is generally no retroactivity for reduced age widow(er)srsquo annuities Lumpshysum death benefit applications must be filed within 2 years after the death of the employee There is no time limit on filing for a residual payment

GARNISHMENTPROPERTY SETTLEMENTS

Garnishment Certain percentages of an employee spouse or survivor annuity may be subject

to legal process (ie garnishment) to enforce an obligation for child support and or alimony payments

Property settlements Employee tier II benefits vested dual benefits and supplemental annuities are

subject to court-ordered property settlements in proceedings related to divorce anshynulment or legal separation Tier I benefits are not subject to property settlements

58 2018 INFORMATIONAL CONFERENCE HANDBOOK

REPRESENTATIVE PAYEES

Railroad retirement or health insurance benefit payments can be made to a repshyresentative payee for a beneficiary if it would best serve the interests of the beneshyficiary Payments made in this way are generally for a child or an adult incapable of using the benefits in his or her own interest The representative payee must use the benefits for the beneficiaryrsquos best interest The benefits are generally used to provide for basic needs The representative payee must report events which could affect the payment of the benefits and be able to account for the benefits

IF REQUIREMENTS FOR BENEFITS ARE NOT MET

Retirement annuities are not payable by the RRB unless the employee has 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of sershyvice at any time Service includes any creditable military service

Survivor annuities are not payable unless the employee had a current connecshytion with the railroad industry and either 5 years (60 months) of creditable service after 1995 or 10 years (120 months) of service at any time

In either of the above circumstances if the requirements are not met the emshyployeersquos railroad retirement (tier I) credits are transferred to the Social Security Administration and treated as social security credits Benefits paid by that agency would accordingly take into account both railroad and social security covered earnshyings

The Railroad Retirement Act does not allow a former railroad employee to withdraw his or her retirement (tier II) taxes Like social security taxes railroad retirement taxes are not refundable unless retirement tax withholding has exceeded annual maximums (see page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 59 DURATION OF BENEFITS

For practical purposes the average duration of monthly benefits to retired emshyployees is measured by the life expectancies of the beneficiaries at the time their benefits begin which take into account their age sex and other factors A non-disabled male employee retiring today at age 60 may expect to receive his annuity for 224 years on the average while a female age annuitant retiring at age 60 has a life expectancy of 256 years

Table 6--Duration of benefits

AGE OF BENEFICIARY WHEN ANNUITY BEGINS

AVERAGE DURATION (YEARS)

Retired male employee60 65 70

Retired female employee60 65 70

Disabled annuitant1

60

Spouse1

60 65 70

Aged widow(er)1

60 65 70

224 182 143

256 211 170

177

255 212 172

232 190 154

1 For both sexes combined

60 2018 INFORMATIONAL CONFERENCE HANDBOOK

RAILROAD RETIREMENT TAXES

By law railroad retirement tier I payroll taxes are coordinated with social secushyrity taxes and increase automatically when social security taxes rise Employees and employers pay tier I taxes which are the same as social security taxes In addition both employees and employers pay tier II taxes to finance railroad retirement benshyefit payments over and above social security levels A table showing tax rates from 1937 on is at the end of the next chapter

The tier I tax on employees and employers is 765 percent in 2018 The tier II tax on employees is 490 percent while the tier II tax rate on rail employers rail labor organizations and rail employee representatives is 1310 percent in 2018 An employee representative is a labor official of a non-covered labor organization who represents employees covered under the Acts administered by the RRB

Railroad retirement taxes apply to earnings received on an annual basis The amounts of earnings subject to these taxes are determined each year on the basis of national wage levels

DUAL TAX PAYMENTS

Railroad employees who also worked for a social security-covered employer in the same year may under certain circumstances receive a tax credit equivalent to any excess social security taxes withheld

Employees who worked for two or more railroads in a year or who had tier I taxes withheld from their RRB sickness benefits in addition to their railroad earnshyings may be eligible for a tax credit of any excess tier I or tier II railroad retireshyment taxes withheld Employees who had tier I taxes withheld from their suppleshymental sickness benefits may also be eligible for a tax credit of any excess tier I tax Such tax credits may be claimed on an employeersquos Federal income tax return

(Text continues on page 62)

PROVISIONS OF THE RAILROAD RETIREMENT ACT 61

Table 7--2018 Regular Railroad Retirement Taxes

MAXIMUM ANNUAL TAXABLE

TAX RATE EARNINGS

TIER I Employees amp Employers 765 $128400

TIER II Employees 490 $95400 Employers 1310 $95400

Annual regular taxes on employees earning $128400

TIER I TIER II TOTAL

Employees $982260 $467460 $1449720 Employers $982260 $1249740 $2232000

The tier I tax rate is divided into 620 percent for railroad retirement and 145 percent for Medicare hospital insurance The 2018 maximum earnings base for railroad retirement is $128400 and the Medicare hospital insurance tax is applied to all earnings Consequently employee and employer contribushytions continue to be made at the 145 percent rate even after the employee has earned $128400

An additional 09 percent in hospital insurance taxes (235 percent in total) applies to an individualrsquos income exceeding $200000 or $250000 for a marshyried couple filing a joint tax return While employers will begin withholding the additional Medicare tax as soon as an individualrsquos wages exceed the $200000 threshold the final amount owed or refunded will be calculated as part of the individualrsquos Federal income tax return